“Depart from me, you accursed. For I was hungry and you gave me no food, thirsty and you gave me no drink, a stranger and you did not welcome me, naked and you did not clothe me, sick and in prison and you did not comfort me.' They answer, 'Lord, when was it that we saw you hungry or thirsty or a stranger or naked or sick or in prison, and did not care for you?' He answered, 'Truly I tell you, as you did not do it to one of the least of these, you did not do it for me.’”
Matthew 25:40-46
Income Tax revenue is taking a drop commensurate with the kind of slump which we are experiencing in domestic GDP.
But there is a bull market in government spending. This does not include much of the support being given to Wall Street banks and other 'off balance sheet' shenanigans.
Thanks to Escape From America Magazine for these charts.
The expansion of credit in a fractional reserve banking system seems to be geometric.
The spending in the wage - price function, as captured by the velocity of money, seems to be more arithmetic, on the order of 2 or so.
Can money creation then fail to overcome the output gap if monetization is permitted and government spending has been and continues to be robustly in excess of tax receipts?
A refusal of banks to lend would tend to dampen the geometric power of credit expansion and a potential source of money creation. It also would tend to dampen velocity of money.
An undeveloped thought which this blogger is just beginning to consider, offered in the hope that someone might offer some useful data or existing theory on the subject.
And on a separate but somewhat related topic, the flip side of deflation is not hyperinflation as it is an extreme. People who based their risk portfolio only for the extremes of an outcome cannot consider themselves hedged since they are likely to be killed in the middle, the most probable, over a reasonable investment horizon.
