Does federal deficit spending cause inflation? The absolute proof.

So-called federal “debt” isn’t real debt. It is the net total of all deficits, i.e., the net difference between all federal income and outgo. 

Because, by law, the federal government does not run a negative balance in its basic checking account (The General Account), it offsets the bookkeeping “debt” by accepting deposits into Treasury Security accounts (wrongly termed “borrowing”).

This is nothing more than a technical bookkeeping convention. The government does not actually use those deposits to pay its bills. Instead, it creates new dollars, ad hoc, to pay all creditors.

The T-security deposits remain where they are, safe in their accounts. That is what makes them the safest place to deposit unused dollars.

The fundamental purpose of T-securities: To provide an absolutely safe place to store unused dollars, and this safety adds to the stability and worldwide acceptance of dollars.

If the dollars were used, their safety would be compromised, and the fundamental purpose of T-securities would be lost.

There is a widespread belief that deficit spending causes inflation. No evidence exists for that belief. It simply is an article of faith supported by . . . faith.

Here is a comparison of federal deficits (which total to federal “debt”) vs. inflation.

The income/wealth/power Gap between the rich and the rest makes the rich rich. The wider the Gap, the richer are the rich. Without the Gap, no one would be rich; we all would be the same.

So the rich, who run America, want to widen the Gap by reducing Medicare, Medicaid, and other deficit spending.

To widen the Gap, the rich spread the disinformation that deficit spending causes inflation. And that mantra has become accepted knowledge by the media, politicians, and economists.

And it simply is wrong.

SUMMARY

1. There is a strong historical relationship between the price of oil (which reflects supply/demand) and inflation
2. There is a strong historical relationship between food prices (which reflect oil prices, weather, and disease).
3. There is a strong historical relationship between oil prices and food prices.

May we please, at long last, put to bed the unsupported notion that federal deficit spending causes inflation?

Replace it with a factual basis that inflation is caused by shortages, most often shortages of oil, which lead also to shortages of food and other goods and services.

In the science of economics, let us finally accept fact over intuition.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY