The Economic Impact of Deficits

By Jeff Harding.

This video was sent to me by Dan Mitchell at Cato. Dan presents an excellent summary of why government spending is harmful to the economy and prosperity. Whether or not it results in deficits, the greater the spending by government as a percentage of GDP, the greater is the negative impact on the economy. One interesting point he makes is that it is not deficit spending by government that creates inflation. Japan finances its huge deficits by mostly by borrowing from Japanese savers.  Yet they experience deflation. So you need to look elsewhere for the cause of inflation. And, as readers of The Daily Capitalist well know, it the Fed and the fractional reserve banking system it regulates that is the cause of inflation.