No Inflation, No Aftershock

July 31, 2025

By Robert Wiedemer

A number of our clients, as well as many other investors I have read about, have expressed concern over the stock market, the dollar and the economy due to our continued deficit spending. The drop in the dollar this spring has also led to anxiety about the long-term stability of the dollar.

These concerns are well grounded, and I think well explained in our Aftershock books, which sold over a million copies. However, what is often overlooked in our books, and currently, is that these problems will not cause big problems for stocks, the economy or the dollar until we get inflation.

We Put It Simply in Our Books: No Inflation, No Aftershock

Why?

The reason is that to keep massive deficits from hurting the economy and instead, to actually stimulate the economy and stock market short term, is to print money to keep long term interest rates from rising (which they otherwise would be due to massive demand from the government to fund its deficits). And only when that money printing creates inflation do we begin to have a problem. Until printing creates inflation, the deficits have little negative effect on the stock market, the economy or the dollar.

Some people say we have inflation now. Well, we don’t. Inflation is around 3%. Whether the government is right or wrong about that, Wall Street doesn’t care. If the government says its 3%, Wall Street agrees and that’s what matters to the economy, stock market and the dollar.

Currently, We Are Not Even Printing Money. In fact, We Are Destroying the Money We Printed During Covid

To have monetary inflation, we have to be printing money – and we’re not. Actually, we’ve been destroying money since 2022 and have destroyed over $2 trillion, which is much of the money we printed during Covid. I think we will start printing money next year, but you can’t even start worrying about monetary inflation until we start printing money again.

So, Cool Your Short-Term Fears, but Fire Up Your Long-Term Fears

The bigger the deficit now, the more it stimulates the economy and the stock market. It also helps the dollar because more foreigners will buy our dollars to buy our stocks. In fact, in May, as the stock market recovered, foreign investors bought $300 billion of our dollars to buy stocks and bonds. With that sort of demand for the dollar, the dollar will do just fine.

However, long term we are simply piling up more gunpowder underneath our house. So, when the money printing necessary to keep interest rates down as the government borrows more money, becomes inflation, the explosion will be bigger and, more importantly, longer lasting.

Finally, There Is No Escape from the Dollar or the US Stock Market

The other problem you face in the short term is that there is no escape from the dollar or the US stock market. Once the stock market and dollar tanks, it will take the rest of the world’s financial markets along with it.

So, don’t think that by buying foreign currency, foreign stocks or foreign bonds that you are protecting yourself against the long-term or short-term problems with the US stock market or the dollar. You are simply getting a worse long-term return with the same or worse long-term risk.