Quantitative Easing
QE, by the way, did not start in 2009 in the US. It started in 1913 with the establishment of the Federal Reserve. It took a while to really get going though. The practice of the wholesale creation of money out of thin air could not hit its stride until the major impediment of Gold was kicked out of the way. That happened in 1971. Look at the proportion of today’s Treasury funded debt total which has been borrowed since then. But the period between 1971 and 1982 did suffer from one final impediment. This was the fiction that the debt limit increases necessary to fund deficit spending in the 1970's were temporary.
The permanent ceiling of $US 400 Billion was mandated in 1971. By 1978, the funded debt of the Treasury had doubled that figure to reach $US 800 Billion. By late 1982 it had more than tripled it to reach almost $US 1.3 Trillion. Throughout this period, the figure of $US 400 Billion remained the permanent limit and all the additions were deemed temporary. The pathetic implication was that once the US government got the economy on an even keel again, they would pay the debt back down to the limit they had set just before they repudiated Gold as money.
Just as the Nixon administration could have chosen to cease their deficit spending in 1971 in order to preserve the link between the US Dollar and Gold, the Reagan administration could have chosen to do the same thing in order to roll back the debt explosion that had taken place in the intervening eleven years.
Neither chose to do this. Nixon repudiated Gold. Reagan repudiated any idea that there was a limit to the amount the US Treasury could borrow. The only difference in this whole sequence is that the US Treasury still has an official debt limit on the statute books. The only thing new about quantitative easing is the name itself, concocted as yet another euphemism for something which had been going on for a long time.
In 1791, four years after the signing of the US Constitution and two years after George Washington was inaugurated as the first President of the United States, the US government was laboring under a debt of $US 75 million. Almost all of this debt had been taken on to pay the costs of the recently completed revolution from Great Britain. Seventy years later in 1860, as the Civil War loomed large on the horizon that debt had been reduced by $US 10 million to $US 65 million. By 1866, the year after the end of that war, the debt of the US Treasury had ballooned out to $US 2.77 Billion. It did not exceed that level until 1912, a century ago. By 1919, the year after the end of WWI, Treasury debt hit $US 27.4 Billion. In 1940, the year before the US got involved in WWII, the debt was $US 43 Billion. Six years later in 1946 it had ballooned out again, this time to $US 270 Billion. WW II was the last war fought by the US which was declared by the US Congress as laid down in the US Constitution.
Borrowing to finance these wars, all of which were duly declared by the US Congress, totaled $US 255 Billion. In 1791, the new US government was already carrying the debts of the revolutionary wars. In the following 154 years up to 1945, it was engaged in three more major wars. The civil war took four years from 1861 to 1865. The US was actively involved in WW I for 1.6 years from April 1917 to November 1918. Finally, the US declared war in December 1941 and accepted the Japanese surrender in Tokyo Bay in September 1945. WWII cost the US 3.7 years. Add these periods of active participation in war together and you get a total of nine years and three months out of the 154 years between 1791 and 1945. That period of less than a decade saw the US Treasury borrow $US 255 Billion or 94% of the $US 270 Billion in funded debt they owed in 1945. Wars are always expensive.
Now, throw in the two undeclared wars between 1945 and 1971, the Korean war and the Vietnam war. US Treasury debt went up $US 20 Billion between 1951 and 1953. It went up $US 80 Billion between 1965 and 1971. Add that to the $255 Billion the US government had previously borrowed during its years of active war and you reach a total of $US 355 Billion out of the $US 400 Billion funded debt owed by the Treasury in 1971. Yes, the US government was borrowing for other purposes during this period, notably during Roosevelt’s new deal period in the 1930s and Johnson’s great society period in the 1960s. But the fact remains that the few years in which the government of the US was actively engaged in war contributed the vast majority of the funded debt owed by the US Treasury in 1971.
The precedents for this type of burgeoning government indebtedness are as old as recorded history. All of the predecessors of the US as global “superpowers” had followed the same path. That path had, in its turn, impoverished all of them. The US was travelling a well-beaten historical path up until 1971. But there is no historical precedent for what has happened since 1971.