Tuesday, September 29, 2009

Government Spending and Inflation

The below chart speaks for itself when it comes to the relationship between government spending and inflation. It appears the inflation threat is not a matter of if, but when. Government spending is now 25% of GDP and higher interest rates will certainly have a negative impact on the government's future outlays as it likely pays a higher level of interest on the debt.

(click chart for larger image)


Anonymous said...

Here's a comment: Japan.

In 1991 when Japan's bubble burst, Government outlays were 31% of GDP. By the end of the decade, it had increased to 38%. Consumer spending was (tell me if this sounds familiar) constrained by debt overhang and high savings rates.

Show me the rampant inflation incurred by the Japanese over the last 20 years? You won't find it.

Anonymous said...

Great story as for me. I'd like to read a bit more about that theme. Thanks for posting that data.
Joan Stepsen
Gifts geek