The two most important components of US fiscal and monetary policy are the national debt and the Federal Reserve’s ‘Credit and Liquidity Programs and the Balance Sheet’.
National Debt
The national debt of the United States has increased significantly under both Republican and Democratic administrations, although the contributing factors have varied. Under Republican presidents, Ronald Reagan’s administration saw the debt rise by over $1.6 trillion due to tax cuts and increased military spending. George W. Bush added about $5.8 trillion to the debt, driven by tax cuts, the costs of the wars in Afghanistan and Iraq, and the financial crisis of 2008. Donald Trump’s presidency further increased the debt by approximately $7.8 trillion, influenced by the 2017 tax cuts and the response to the COVID-19 pandemic.
In contrast, Democratic presidents have also seen substantial increases. During Bill Clinton’s tenure, budget surpluses were achieved in later years, but the national debt still grew. Under Barack Obama, the debt rose by around $9.3 trillion, largely due to economic stimulus measures following the Great Recession, including the American Recovery and Reinvestment Act. The debt increase continued under Joe Biden, with significant spending on COVID-19 relief measures, including the American Rescue Plan.
Comparatively, the debt increased by approximately $15.2 trillion under Republican administrations (Reagan, Bush, and Trump) and by about $9.3 trillion under Democratic administrations (Obama and Biden), with Clinton achieving a relative fiscal balance during his presidency. This comparison underscores that both parties have contributed to the growing national debt, often influenced by external crises and policy choices.
Federal Reserve’s ‘Credit and Liquidity Programs and the Balance Sheet’
When the Federal Reserve ‘prints money’ (quantitative easing) to buy treasury securities, it acts as a money multiplier. To start with, the Fed shouldn’t own any treasury securities for the long-term. However, two times in the past the Fed has created $4 trillion dollars to buy assets. The first $4 trillion quantitative easing started in August of 2006 under President George W. Bush. The second $4 trillion round of quantitative easing began in August of 2019 under President Donald Trump. The combined $8 trillion dollars in quantitative easing is further exacerbated by the ‘money multiplier effect’. The end result of quantitative easing exacerbates the national debt. Additionally, the printing of money is one of the most significant drivers of inflation, as it increases the money supply and can lead to higher prices across the economy.