[yxhuvud]

This

> The money tracks the value in the economy,

Does not imply this

> so the inflation is zero.

I do agree that the assertion holds true in most cases, but it break down during extreme environments - widespread bank collapses or when the productive ability of the economy is sharply reduced. Loans that cannot be repaid break the equation at some point.

As for government spending, it greatly depends on what it does with the money, and also on taxation. The government promises to pay back money based on future taxation, and if the taxation grow faster than the debt then there won't be any inflation.

[WalterBright]

Yes, it does imply this, because inflation is a supply & demand thing. More money representing the value of goods and services means each dollar is worth less == inflation.

Borrowing using assets as collateral means the money created matches the value of the collateral.