Inflating Away the Debt
From Joshua Aizenman & Nancy Marion:
The estimated impact of inflation on today's debt/GDP ratio is larger than in the mid-1970s but not as large as in the mid-1940s. If inflation were 5% higher, the debt/GDP ratio would be about 20% lower, a debt ratio of 43.4% instead of 53.8%.
…
Today, a much greater share of the public debt is held by foreign creditors - 48% instead of zero. This large foreign share increases the temptation to inflate away some of the debt. Another important difference is that today's debt maturity is less than half what it was in 1946 -3.9 years instead of 9. Shorter maturities reduce the temptation to inflate. These two competing factors appear to offset each other.
Can we “inflate away” Social Security and Medicare obligations since those are rising faster than tax collections?
HT: Arnold Kling