infectious diseases and other acts of nature (like droughts and floods) were repeatedly as big or bigger than any other thing affecting economics and markets, including wars and revolutions
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As you know from my prior writings I believe that the 1930-45 period is the most recent analogous period to now because then, like now, interest rates hit the 0% floor, monetary policies were ineffective, debts were high, the global economy was weak, there were large wealth and political gaps, and a rising world power was emerging to challenge the existing world power. In response to these things, especially in the war years, there was an enormous amount of fiscal spending that produced a lot of government debt that needed to be sold when there wasn’t enough free market demand to buy, so central banks needed to monetize that debt in one way or another. The deficit that the US government is now going to have will be over 20% of GDP and the amount of printing g of money and debt-buying that the Fed will do will bring its debt holdings to something like 30% of GDP, which is greater than it was at its peak in World War II.
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The war case is the most applicable analogous case. In that case, as government spending on the war rose a lot, all policy makers in all countries raised taxes, borrowed, and printed money. That’s what they always do in that sort of situation. You should expect that in this situation.
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More specifically, immediately following the US entry into the war, policy makers started hiking corporate and personal tax rates and issuing debt to the public. The following table shows the sources of government financing for the US and other countries in the war, using data only from actual war years (i.e., 1941-45 for the US) and omitting years for which data was extremely unreliable (i.e., 1945 in Germany and Japan). As you can see, they all taxed, borrowed, and printed a lot.
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Consistent with the Fed being able to support the Treasury without relying primarily on large-scale purchases directly, there was comparatively little pressure on the dollar. Gold prices were largely flat over the war though they rose during the postwar period. The eventual peg under the Bretton Woods system restored the gold price to its prewar level though gold remained illegal for US citizens to own.
Source: Ray Dalio Commentary: The Mechanics of the War Economy – GuruFocus.com