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 quarterly nominal level of the U.S. public debt, interest expense on the debt, U.S. Gross Domestic Product (GDP), S&P 500 Index level (SP500) and consumer price index (CPI) as available during January 1966 (limited by public debt data) through September 2024 (about 59 years), we find that: (more…)