What happened
President Donald Trump has suggested that inflation could be used to pay off the United States' $40 trillion debt. In a recent interview, Trump stated that certain levels of inflation would allow the debt to be paid off rapidly. This approach would involve the Federal Reserve increasing the money supply, which would reduce the value of the debt over time.
However, this method would also lead to currency devaluation, potentially weakening the US dollar's dominance and causing interest rates to rise. The federal government is faced with limited options to pay down the debt, with inflation and bankruptcy being the two primary choices. Inflation is already underway, with households experiencing a headline annual inflation rate above 3%.
The US debt has been growing rapidly, with the country adding around $1 trillion to the national debt every few months. To avoid worsening debt troubles, the economy and the Trump administration would need to achieve significant deflation, end the war in Iran, and reduce the annual federal deficit to below $1 trillion.
