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Federal deficit spending causes inflation except when . . .

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As “everyone” knows and claims, federal deficit spending causes inflation . . . except when it doesn’t.

As you can see from the graph below, it never does.

Each place where the red and blue lines diverge indicates a lack of correlation between federal deficit spending and inflation.

RED line = Federal deficit spending. BLUE line = inflation

All inflations and hyperinflations have been caused by scarcity, usually shortages of food and/or energy.

That said, it is possible, though rare, for federal deficit spending to cause a shortage during major wars, especially a shortage of fuel. War machinery uses a great deal of oil, and inflation is highly related to oil prices.

But contrary to popular belief, federal spending to stimulate economic growth, or to reduce poverty, or to provide benefits to the underclasses, does not cause inflations.

It also does not “overheat” the economy (whatever that means), or any other similarly vague terms used by economists to make you think they know what they are talking about.

In fact, federal deficit spending not only cures recessions, but it also can cure inflations, if the spending is used to purchase from abroad, then distribute to the public, the items that are in short supply.

For example, the most common cause of inflation these days is an oil shortage, which can be cured domestically by the federal government buying oil on the open market and distributing it to the private sector.

That is the purpose of the Strategic Petrolium Reserve:

According to the United States Energy Information Administration, approximately 4.1 billion barrels of oil are held in strategic reserves, of which 1.4 billion is government-controlled.

The remainder is held by private industry. In 2004 the U.S. Strategic Petroleum Reserve had the largest strategic reserve, with much of the remainder held by the other 27 members of the International Energy Agency.

Global oil consumption is in the region of 0.1 billion barrels per day. The 4.1 billion barrels reserve is equivalent to 41 days of production. The reserve is intended to be used to cover short-term supply disruptions.

Covering a 50% shortfall would deplete the reserves in 82 days.

It is those “short-term supply disruptions,” not federal deficit spending, that cause inflation.

How did the federal government obtain 1.4 billion barrels of inflation-preventing oil in its strategic reserve? Answer: Federal deficit spending.

I remind you of this because we now have, just balancing on a knife’s edge, a Democratic administration, which historically has tried to provide benefits for the lower- and middle-income groups.

The resistance to Medicare for All, Social Security for All, College for All, Basic Nutrition for All, along with improved infrastructure, usually comes from the party of the rich, the GOP.

Their excuses for not providing benefits to the “not-rich” can be summarized by three lies:

  1. The federal government can’t afford it without tax increases. (But our Monetarily Sovereign government has the unlimited ability to create dollars, i.e “print money.” So taxes are not necessary. See here.).
  2. The lazy poor will use benefits as an excuse not to work (except that is a proven myth, promulgated by the rich, and has no basis in fact. See here.).
  3. Deficit spending will cause inflation. (See the above graph).

O.K., politicians, what’s your next excuse for not implementing the Ten Steps to Prosperity? (below).

Rodger Malcolm Mitchell

Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..


The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.



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