The aim of this paper is pointing out the causes of persistent budget deficits, and the emergence of deflation. As a result of the theoretical analysis of capital and labor tandem the phenomenon of labor self-financing is revealed. Discerning the money-goods economy in the form of the two parallel streams of products, and money lead to the alternative equation of exchange, which indicates an acceptable credit size? The main outcome of this study is clarify that deflation is related to funding of work in the public sector by taxes. It results in imbalance between the value of the product and the money streams. If inflation is under control then deflation reveals itself. Additionally it is concluded that economics without deficit, inflation and deflation may exist. It is further claimed that in the present economics there is a correspondence between the amount of necessary issuance of money and the amount of salaries in the public sector.
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