Budget Surpluses Have Been Allowed to Cause Depressions

Our last budget surplus ended in 2001, and was reported as the longest surplus since 1927-1930. Do those dates ring a bell? In fact, the first six US depressions followed the first six sustained budget surpluses. In 1836, President Jackson actually paid off the federal debt and the worst depression on record followed. The last major nation to allow a budget surplus was Japan, 1987-1992, and they are only now emerging from a decade plus economic nap, and record unemployment.

It’s quite simple, government surpluses drain the financial assets we call savings from the economy, eventually destroying it. And economies do not recover until AFTER there has been a large enough deficit to restore lost equity (and income) and supply sufficient the net financial assets needed to support the next credit cycle.