Public Debt, Inflation and the Stock Market

When the U.S. government runs substantial deficits, some experts proclaim the dollar’s inevitable inflationary debasement and bad times for stocks. Other experts say that deficits are no cause for alarm, because government spending stimulates the economy, and the country can bear more debt. Who is right? Using annual (end of fiscal year, FY) level of the U.S. public debt, interest expense on the debt, U.S. Gross Domestic Product (GDP), Dow Jones Industrial Average (DJIA) return and inflation rate as available during June 1929 through September 2018 (about 89 years), we find that: (more…)