How does inflation affect national debt

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If we have lower federal rates, that causes an inflation right?

Currently we have massive national debt. And we pay interest on that.

Why not try to maintain inflation just slightly above the interest rate of our debt, so that eventually our debt is irrelevant (the “buying power” of the 30ish trillion dollars would be reduced faster than the interest we pay on it).

In: Economics

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Anonymous 0 Comments

> If we have lower federal rates, that causes an inflation right?

Not always. 2008-2020 frankly was characterized by near 0 fed rates and extremely low inflation. They were not able to hit the 2% inflation targets during this time.

Simply put, inflation is complicated and is affected by a lot of other factors. Like for example the price of oil. Low oil prices typically means lower inflation, while high oil prices typically leads to higher inflation.

> Why not try to maintain inflation just slightly above the interest rate of our debt, so that eventually our debt is irrelevant (the “buying power” of the 30ish trillion dollars would be reduced faster than the interest we pay on it).

In some sense we already do, but not for the reason of paying off the debt via inflation. The target of 2% inflation is meant to keep the economy growing. Too little and you risk starting a depression, too high and you wreck the economy. The US is able to lend at extremely low rates, lower than anyone else in the world. Because people are willing to buy it. It’s considered as safe as holding piles of cash, which earns you 0% interest. So as long as the US pays just above 0%, there will be takers.

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