What we do know is that (a) the ratio between receipts and debt continues to erode, and that cannot be assumed to be anything other than a headwind for value, and (b) nothing stays the same over time.
You said you understand that our currency is sovereign, and then you attempt to deny that in every other assumption you make. The federal government, specifically congress, must “spend” a dollar to inject it into the private sector where it becomes an asset. The reverse of this is the removal of private sector assets with taxation, which shouldn’t be confused with “revenue” since the issuer of currency doesn’t need our currency to spend currency. This is simply dual entry balance sheet accounting. It is not political or have an attached ideology. It is just how it works.
The economy isn’t the budget. It is the people, their homes, health care, savings, education, and the infrastructure that makes the rest possible. Any moderately adept accountant can balance a budget, but the “value” of the dollar depends upon a lot more than it’s contribution to the balance sheet when it is invested in multipliers in the economy. Even the much maligned food stamp returns over $1.50 in economic activity for each dollar of debt it represents. That multiplier becomes much higher when we get into education or other investments that generate increased ability to produce goods and services in the future.
Inflation, as it works in the real economy, isn’t that easy to cause. Japan has been trying to weaken its currency for decades with little success. This is in spite of its debt now exceeding 200% of its GDP. As long as the potential to absorb the deficit in “potential” goods and services isn’t exceeded the deficit spending will drive the economy toward that potential, not inflate it. The US has such a large potential in reserve that we could likely double the deficits for decades (which we should) without inflation resulting from the added currency.
Our version of capitalism also tends to sequester the currency from any velocity in the economy, nullifying its inflationary pressure, much quicker than would happen elsewhere. Increased productivity over the last four decades has pretty much gone straight to someone’s bank account without benefiting anyone who isn’t part of the elite wealthy class. If you want to find the cause of inflation since the 60’s you would be wise to overlay its graph with one reflecting the price of oil which we insist upon being the primary energy source that we protect against all competition.
Cost/push inflation normally only moves prices influenced by the resource rising in price, but oil influences every piece of the production/distribution chain and no amount of budget cutting will ever offset that. Not following that inflation with a balancing increase in the currency supply only creates a misery index, not countering pressure on prices. You can only tamp down prices when there is room above zero profitability to move in, and even that requires that you force decreased demand, which is not how to build a healthy economy.
To provide a summary; if we (government) don’t spend in sufficient deficit amounts to offset 1) trade deficits, 2) wealth accumulation that doesn’t increase productivity, 3) cost/push inflation from across the board pressures from energy prices, then our economy is forced to degrade by the lack of currency with velocity. If we do this long enough, which we have since the 80’s, we force the private sector to leverage its own debt to stay even, which can’t happen when interest is applied to the leverage. On top of that, political downward pressure on investment in infrastructure, both material and people, makes it that much more difficult to deal with future competition as a society in a shrinking world. Denying reality shouldn’t be a requisite to being conservative.
