Think Inflation Is Done? Think Again!

 The first is the destruction of credit's value through its non-productive expansion, mainly by governments running budget deficits.

Budget deficits always debase the currency Margret Thatcher said something on the lines that socialism fails when it runs out of other peoples' money.

Wall Street's Wa... Leopold, Les Best Price: $17.09 Buy New $17.80 Consequently, with mandated welfare and other expenses increasing, hopes that economic growth will reduce budget deficits are misplaced.

Estimates for budget deficits in nearly all high-tax jurisdictions will turn out to be overly optimistic.

Take the situation in the USA. As recently as February, the Congressional Budget Office forecast a budget deficit of $1,507 billion for the current fiscal year.

If, according to the Bureau of Labor Statistics GDP grew by 4.5% in the year to last March, allowing for a budget deficit injection of 9% means the private sector actually contracted by 4.5%. A rough and ready calculation perhaps, but it is important to understand that not only is the expansion of non-productive government debt concealing the true economic situation, but it is also debasing the currency.

If bank credit is expanded for non-productive purposes, then that leads to trade deficits because it finances excess consumption.

To summarise the conditions of sound money and free trade unhampered by government intervention, we can express it in the following accounting identity: Trade Deficit = Budget Deficit -.

If there is no change in savings and capital investment, then through credit creation by a central bank to finance a government's budget deficit a similar trade deficit is bound to arise.

As well as the geopolitical dimension, the motive for these misguided policies is an erroneous belief that the trade deficit will be eliminated.

As we have seen from the accounting identity above, the trade deficit is linked to the budget deficit.

https://alasdairmacleod.substack.com/p/think-inflation-is-done-think-again