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

11 Answers

Anonymous 0 Comments

The issue is consumers, workers and companies don’t line high inflation. And there’s always the risk of inflation running out of control if you give too much slack. It’s not that easy to reach an exact number, hence why they have target ranges for inflation. 

So we let inflation and economic growth slowly erode that debt rather than doing it quickly. Occasionally, inflation alone will be higher than interest. Such as during 2016-2019. Most of the time, inflation + GDP growth will outpace the interest on the debt. 

But the main issue is to not add new debt to that. USA debt burden could have fallen by almost half from 2016-2019 when considering the previous points. But look where it is instead. 

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