Alan Greenspan, former Federal Reserve Chairman: “A government cannot become insolvent with respect to obligations in its own currency. There is nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The United States can pay any debt it has because we can always print the money to do that.”
Ben Bernanke, former Federal Reserve Chairman: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. It’s not tax money… We simply use the computer to mark up the size of the account.”
Jerome Powell, Federal Reserve Chairman: “As a central bank, we have the ability to create money digitally.
St. Louis Fed, in their publication titled “Why Health Care Matters and the Current Debt Does Not”: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
Paul O’Neill, former Secretary of the Treasury: “I come to you as a managing trustee of Social Security. Today, we have no assets in the trust fund. We have promises of the good faith and credit of the United States government that benefits will flow.”
Mario Draghi, former president of the (Monetarily Sovereign) European Central Bank, asked, “Can the ECB ever run out of money?” Mario Draghi: Technically, no. We cannot run out of money.
Paul Krugman, Nobel Prize–winning economist: “The U.S. government is not like a household. It literally prints money, and it can’t run out.”
Hyman Minsky, Economist: “The government can always finance its spending by creating money.”
Eric Tymoigne, Economist: “A sovereign government does not need to collect taxes or issue bonds to finance spending. It finances directly through money creation.”
Three Federal Reserve Chairmen, the Secretary of the Treasury, the President of the European Central Bank, and three economists agree that the Monetarily Sovereign U.S. can never run short of dollars. This means it can always pay all its debt without borrowing or taxing.Warren Mosler (MMT Founder): “Federal taxes don’t pay for anything. They function to remove money from the economy. The government doesn’t need taxes to spend—it taxes after spending to manage demand.
Frank Newman (Former Deputy Secretary of the U.S. Treasury): “The government creates money when it spends. Taxes are just a way to remove money.”
Stephanie Kelton (Economist, former Senate Budget Committee Chief Economist): “The U.S. government is not like a household. It is the issuer of the currency. It doesn’t need to ‘get’ money from anyone else—not from taxpayers, not from China.”
James Galbraith (Economist, advisor to Congress): “The U.S. government spends money into existence. It does not need to collect taxes to spend.”
Federal deficits and debt (i.e., the total of deficits) are not burdens on the federal government.Concerns about the size of a federal deficit or the federal debt are misplaced. The federal debt, no matter how large, never is a burden on the government or on taxpayers.
Even if federal tax collections fell to $0, the government could continue spending forever. Think about this the next time someone says Medicare and Social Security are running short of money. This cannot happen unless Congress and the President want it to.
Why then does the government collect taxes, if not to pay for spending:
- To control the economy by taxing what it wishes to discourage and by giving tax breaks to what it wishes to reward.
- To assure demand for the U.S. dollar by requiring taxes be paid in dollars.
All those articles you read and speeches you hear expressing horror at the size of a federal deficit or the U.S. debt result from ignorance or an attempt to mislead you.
Federal deficits and debt are necessary to grow the economy. When the federal government runs a deficit, it pumps growth dollars into the economy.
Recessions occur when deficits are too small for economic growth.
Federal deficit spending adds growth dollars to the economy. Rather than calling it a “federal deficit,” it should be called an economy’s surplus.
This brings us to the central question: Does massive federal spending cause inflation?
Here are the inflations that have occurred since 1940, the start of World War II
U.S. Inflations Since 1940 — Causes Explained
1941–1947, Inflation Peak: ~20% in 1947 Cause: World War production and rationing replaced production for the economy, causing shortages of oil, food, rubber, steel, and other war goods. Consumer goods were scarce. The inflation was not caused by “too much money” but by total war mobilization stretching supply chains.
1950–1951 – Korean War Inflation Inflation Peak: ~9% in 1951 Cause: Sudden demand surge for military goods. Civilian supply shortages as factories shifted to war production. Another classic case of resource reallocation causing shortages.
1966–1969 – Vietnam War + Great Society Buildup Inflation Peak: ~6% by 1969 Cause: High military spending. Shortages of labor created wage/price pressures. Fed kept rates too low, allowing demand to overrun capacity.
1973–1975 – First Oil Shock Inflation Peak: ~12% in 1974 Cause: OPEC oil embargo caused energy shortages. Gasoline, transportation, and heating costs soared. Knock-on effects on food prices and shipping. Classic inflation from a shortage of a critical resource—oil.
1979–1981 – Second Oil Shock + Supply Constraints Inflation Peak: ~14.8% in 1980 Cause: Iranian Revolution disrupted oil supply. Ongoing energy bottlenecks from the 1970s. Rising wage expectations and commodity prices. Again, a supply-side crisis, not monetary excess.
1990 – Gulf War / Oil Price Spike Inflation Peak: ~6% in 1990 Cause: Oil price spike due to Iraq’s invasion of Kuwait. Temporary, short-lived inflation driven by energy costs. Again, a supply-side external shock—oil.
1992–2019 – Low and Stable Inflation Cause: Globalization, technology, slack labor markets, and stable commodity supply kept inflation low. Despite massive federal deficit spending, the Fed met its 2% inflation target (or missed below it) for most of this era. No notable inflation episodes for ~30 years because there were no serious shortages.
2021–2022 – Pandemic Inflation Inflation Peak: ~9.1% in June 2022 Cause: COVID-19 supply chain disruptions. Labor shortages and shipping bottlenecks. Oil/gas price surge from Russia–Ukraine war. Housing and car shortages (semiconductors, construction delays). Not simply “too much stimulus”—inflation started after supply chains snapped, not when money was spent.
2023–2025 – Disinflation (Monetary Sovereign view fits here: shortage-driven, not money-driven.Inflation Falling) Inflation has been falling steadily, despite continued government spending. Supply chains have recovered, and energy prices normalized. A strong example of how inflation eases when shortages ease—even with ongoing deficits.
However, there is a strong relationship between an oil shortage and inflation.
While oil shortages are important, shortages of other products can also affect inflation: Other energy sources, food, transportation, steel, lumber, labor, housing, and computer chips all contribute to inflationary pressure.
And it’s not only in America. Here are a few foreign hyperinflations and their causes:
Weimar Germany (1921–1923) Cause: War reparations from the Treaty of Versailles had to be paid in foreign currency. The shortage of foreign currency plus shortages caused by the loss of industrial capacity in the Ruhr region after French and Belgian occupation.
Zimbabwe (2007–2008) Cause: The land reform program disrupted agricultural production, especially of tobacco and maize, key exports. There was a massive drop in food and export production. Severe shortages of food and essential goods caused inflation to spiral.
Hungary (1945–1946) Cause: After World War II, Hungary’s infrastructure and economy were destroyed, leading to shortages of goods, services, and production capacity.
Yugoslavia (1992–1994) Cause: War and sanctions after the breakup of Yugoslavia led to the loss of industrial output and massive shortages.
Venezuela (2016–present) Cause: The collapse of oil production and exports, which were the main source of foreign exchange. The import-dependent economy faced extreme shortages of food, medicine, and goods.
In every case, shortages caused prices to rise. However, rather than address the scarcities, the governments printed currency, which gave the illusion that the currency caused inflation.
SUMMARYWhile “excessive federal spending” is often blamed for inflation, the data do not support that common belief.
The data show that inflation is caused by shortages and is cured by addressing them. Printing currency merely pours gasoline on the fire that would be quenched by removing the fuel—the shortages.
So the next time you read or hear that the federal debt or deficit is too big, write or ask the authors to show you proof. If they say that Germans pushed wheelbarrows filled with money or merely claim that Zimbabwe is an example, show them this article and see if they can pick it apart.
Inflation is most definitely not “too much money” chasing anything. Inflation is too few goods and services. Cure the shortages, and you cure the inflation.
Rodger Malcolm Mitchell
Monetary SovereigntyTwitter: @rodgermitchell
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