How to cure recessions, inflations, stagflations and depressions while cutting taxes. The solutions for the federal debt, federal deficit, Medicare reform and solutions, Social Security reform and solutions, education, the infrastructure, balanced budget, defense, tax reform, fair taxes and other problems in the economy are shown in FREE MONEY. Discusses such topics as balance of payments, balanced federal budget, balanced budget, bank failure, bank, bonds, CD, Concord Coalition, congress, cure recession, cure recession, cure stagflation, cure inflation, current account, cut interest, debt clock, debt, deficit solution, deficit, depression, depression solution, discount rate, discount rate, economics, economy, eliminate taxes, end taxes, end FICA, end FICA, fair tax, FDIC, federal deficit, federal deficit solution, federal government budget, federal reserve, federal tax, federal budget, federal debt, Federal Reserve, FICA, FREE MONEY, GDP, gold, gold standard, government budget, Gross Domestic Product, inflation solution, inflation, interest, interest rate, invest, Medicare cure, Medicare fix, Medicare reform, Medicare Solution, Medicare, money supply, money, mortgage, prevent stagflation, prevent depression, prevent inflation, prevent recession, prime rate, raise interest, recession, recession solution, reform social security, reform medicare, regressive tax, Rodger Malcolm Mitchell, Rodger Mitchell, safe investments, safe investment, Social Security fix, Social Security cure, Social Security solution, Social Security, Social Security reform, stagflation, stimulate economy, stimulus, tax reform, tax, taxpayers, the Fed

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 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.

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