Submitted by Taps Coogan on the 3rd of July 2019 to The Sounding Line.

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In 1942, when US defense spending started to ramp up in preparation for entering World War II, the national debt was only 48% of GDP. Yet, it was already obvious to policy makers of the time that it would be necessary to peg long term interest rates at a low level to ensure that war spending did not lead to a debt crisis. Accordingly, the Fed pegged long-term interest rates at 2.5% in 1942 and kept them there until 1951. The national debt would rise to 120% by 1946 and then declined as war spending wound down after the war.

Today, the US national debt-to-GDP ratio is 109%. The only other time in American history it has been this high, or higher, was for two years at the height of World War II.

Today, the Federal Reserve is contemplating re-deploying exactly the same program that was used to peg interest rates during WWII. This time however, we are to believe that the program has nothing to do with monetizing the surging national debt. This time, the plan is allegedly needed in order to stimulate the economy so that it never again experiences a recession.

It is one thing for the Fed to print money for a to finance the federal government during the worst military conflict in human history. It is another thing to do so as part of an plan to keep the economy out of a run-of-the-mill recession, the likes of which the world has endured every five to ten years since the dawn of time. At some point, the distinction between endless stimulus programs that just so happen to involve monetization of the national debt and expressly printing money to finance unsustainable deficits becomes irrelevant. That point is fast approaching.

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