Government spending creates inflation through two mechanisms: first, when the government spends money, it increases debt and creates new money 'out of thin air,' which devalues existing currency in real-time; second, the newly created money enters the economy and increases demand, further driving up prices.
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Deep Dive
The Federal Government Has No Money — Every Dollar It Spends Is InflationHinzugefügt:
First of all, does the government have any money? The answer is no. It's all debt. It's all debt. So, what does that mean? That the moment that the government spends a dollar, what just happened?
We're a dollar more in debt. That's true. And because we're in debt, it actually is not a dollar that exists.
It's a dollar that has to be invented out of thin air. What does that mean? It means the dollar in your pocket is worth less.
It infl the first thing it does when we go further into debt is it actually makes the dollar that you possess worth less in real time. That's the first way it's inflationary. The second way that it's inflationary is then okay the dollar gets to somebody and they do well with it. They go spend it. They spend the money they would not have otherwise had. What does that do?
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