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January 30, 2019 | When is Printing Money Deflationary rather than Inflationary

Martin Armstrong

Martin Arthur Armstrong is the former chairman of Princeton Economics International Ltd. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.

QUESTION: It seems the Left Wing Progressives in the US House (opponents of Pelosi) have adopted the Money Market Theory of Prof. Stephanie Kelton of U of MO.-Kansas City to justify unlimited deficit spending of the US Govt. OK as the Govt. can finance its deficits by unlimited currency printing.

Would you please comment.

Thanks and keep up the good work.


ANSWER: Actually, there would be no issue if the government simply created money to fund its normal expenditure. Historically, that will produce very modest inflation. The crisis is when you borrow to fund that deficit spending. In 2019, interest expenditures may now exceed the cost of defense. It is far cheaper to create the money needed than borrow and keep rolling the deficits forever. Then the cumulative interest keeps rising and crowds out all other expenditures. This is what is happening.

The process underway creates DEFLATION, not INFLATION, because the governments keep raising taxes to fund the deficits and that reduces the disposable income. This is why we see riots in France. Yes, people earn more, but they are being left with an eroding disposable income base. Governments need to fund themselves so they raise taxes. But the interest expenditures keep rising and consume all other areas of spending. It becomes a self-defeating process that leads to the crash and burn.

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January 30th, 2019

Posted In: Armstrong Economics

One Comment

  • Rhys Jones says:

    Nobody has taken issue nor mused “aloud” the comments made by IMF director LaGarde when she stated in ??2015/??2014 that countries when finding themselves incapable of paying interest or repaying on matured debt, simply “re-purpose” and “re-profile” their debt. Effectively two very different things… “Re-Purpose” means you just gave us the money to fund our pension & social deficits… Thanks.. “Re-Profile” means… 91 day bills are now 2-yr bonds… 10-yr bonds are now perpetuals…

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