The measure of an economy is money. A large economy needs a larger supply of money than does a small economy. Therefore, a growing economy needs a growing supply of money. All money is a form of debt. Therefore, a growing economy requires a growing supply of debt. U. S. Federal Debt is the safest, most controllable form of debt. The federal government, alone among borrowers, never will default. Thus, there is no federal debt or deficit problem, and a balanced federal budget leads to a recession or a depression.

 
Balanced Federal Budget, Federal Deficit Solution Federal Deficit Problem Balanced Federal Budget Federal Government Budget
Balanced Federal Budget
Does Federal Debt Cause Inflation?

       Popular wisdom tells us federal deficits and debt can cause inflation. The reasoning is:

  • Inflation means the value of money falls compared to the value of goods and services. More dollars are needed to exchange for a fixed amount of goods and services.
  • The value of money is based on supply and demand
  • All money is a form of debt. When the federal government creates debt by selling T-Bills, T-Notes and T-Bonds, it creates money.
  • Therefore, if the government increases the supply of our money, without also increasing the demand, the value of our money will fall and we will have inflation.

           The key words are "without also increasing the demand." Because the value of money is based on supply and demand, the value can be maintained or raised by increasing the demand.
           What are the factors affecting the demand for money? Risk and reward. The greater the risk, the less demand. The greater the reward, the more demand. Therefore, to increase the demand for money requires reducing the risk while increasing the reward.
           The primary risk for money is loss of value, either by inflation or government devaluation. The U.S. government is known for fighting inflation, and is not expected to devalue its currency. So the risk in owning dollars is minimal.
           What is the reward for owning dollars? Interest. You would rather own dollars when they pay a high interest than when they pay a low interest. Do dollars pay interest? Yes, your dollars in your savings account pay you interest. Also, your dollars exchanged for T-Bills, T-Notes, T-Bonds, corporate bonds, municiple bonds, money markets, etc., all of which are forms of money, all of which pay you interest.
           You have a choice of many investments, some of which are money and some of which are not money. The above investments, being financial debt, are money. Investments that are not money include stocks, real estate and all commodities such a gold, silver diamonds and corn.
           That is why, when interest rates are low, people are more likely to invest in non-money assets such as real estate and stocks. When interest rates are high, people are more likely to invest in money assets such as bonds and CDs.
           High interest rates increase the demand for money, which is why the Fed increases rates when it worries about inflation.



           In the above chart, the red line indicates changes in inflation while the blue line indicates changes in federal debt. It is easy to see there is no relationship between federal debt and inflation. The Fed is quite proactive about inflation, as can be seen in the following chart.



    In the above chart, the red line indicates changes in inflation, while the blue line indicates changes in interest rates. Each time inflation rises, the Fed increases rates to increase the value of the dollar, compared with the values of goods and services.

           In summary, increases in federal debt do not, and will not, cause inflation, so long as interest rates create sufficient demand for money. Since the Fed controls interest rates, the Fed has absolute control over inflation and is directly responsible for any periods of inflation we have had.
    CONTENTS OF THIS WEB SITE
    1. Stagflation
    2. Federal Budget Deficit
    3. Social Security and Medicare Solutions
    4. National Debt Letters
    5. Federal Deficit Solution
    6. Concord Coalition.
    7. Balanced Federal Budget
    8. Federal Deficit Problem
    9. Federal Government Budget
    10. US National Debt
    11. National Debt Solution
    12. A Child In Arms
    13. Inflation and Stagflation
    14. Glossary of Economic Terms Debt, Money, Deficit, Spend, Owe
    15. U.S. National Debt
    16. US National Debt Clock
      The Interest Rate Fallacy | Social Security Solutions And Reform | Medicare Solutions And Reform | Solutions To Our Economic Problems | Recessions, Depressions, Inflations, Stagflations: Causes and Cures | Federal Debt of the U.S. | Why We Need The Federal Budget Deficit | Stagflation: What It Is And How It is Prevented And Cured | Interesting Letters To The Media | Is There A Federal Deficit Solution? | Should We Have A Balanced Federal Budget? | What Is The Federal Deficit Problem? | How The Federal Government Budget Affects The Economy | A Discussion Of The US National Debt | The National Debt Solution | Short Stories: A Child In Arms | Glossary of Economic Terms Debt, Money, Deficit, Spend, Owe | US National Debt Clock | The Solution to Inflation and Stagflation | What Is Pseudoeconomics?   | How Is Money Supply Like The Weather? | Do Low Interest Rates Help The Economy? | The Solution to Federal Tax Reform | The Relationship Between Gold and Money | Why Do You Pay Taxes? | Social Security Reform | Does Federal Debt Cause Inflation? | The 5 Myths That Damage Our Economy | 10 Reasons to Eliminate FICA | GETROYS | Rodger M. Mitchell -- Ideas |