How does a country "inflate away its debt?"

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dmger14's picture
dmger14
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Joined: Dec 7 2011
Posts: 83
How does a country "inflate away its debt?"

I can understand if money is "printed" and not backed by debt. Simply print it to pay off maturing debt and make interest payments.

HOWEVER, in the US all "printed" money IS backed by debt.  So in my understanding, all we can do is DELAY a debt problem by issuing new debt to make good on maturing old debt and any current interest due.  But the total debt INCREASES, so we aren't inflating away our debt, we are inflating our money supply and increasing debt commensurately.

Am I missing something?  Isn't inflating away debt an erroneous statement?

dmger14's picture
dmger14
Status: Bronze Member (Offline)
Joined: Dec 7 2011
Posts: 83
I got at least part of the

I got at least part of the answer reading a Daniel Amerman article a few minutes ago.  Through inflation, presumably prices and wages will increase, while the terms of existing debt remain constant (i.e. US borrows debt very cheaply from the fed, which is the money creation leading to the inflation).  The wage increase will lead to higher taxes, which leads to higher tax receipts and hence money to the gubment to pay off its low rate loans. 

Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2379
Wage-tied inflation would be too good for the common folk...

We won't get that ... we will get stagflation instead.  In fact, nine out of ten oligarchs surveyed preferred stagflation    : )

 

(I made that up)

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