r/PoliticalDiscussion • u/factsnsense • 6d ago
US Politics What are the arguments for and against treating inflation as an acceptable way to reduce the federal debt burden?
Federal debt crossed $40 trillion on August 18, 2026, according to Treasury's Debt to the Penny daily series, which reports total public debt outstanding each business day. Most coverage focused on the balance. The measure economists more often use is debt against the size of the economy, and that measure got better last quarter, from 122.6 percent down to roughly 121.5.
The reason it moved is interesting. BEA's second estimate for the second quarter of 2026 reports that real output grew 1.5 percent at an annual rate while output measured in current dollars grew 8.0 percent. The difference between those two figures is price change (inflation) rather than additional goods and services. Our federal debt burden got better as prices push the denominator up without anyone producing more.
This is not new in kind. Julien Acalin and Laurence Ball, writing up NBER Working Paper 31577, attribute the 1946 to 1974 fall in US public debt, from 106 percent of GDP to 23 percent, to a mix in which 32 of the 83 points came from growth and 28 came from interest rates held below inflation. They write that the decline "was not primarily the result of high growth." The dollar amount of the debt actually rose across that whole period.
The counterweight to this is on the interest payments to tax revenue r. CBO's budget outlook summary puts fiscal 2026 net interest at $1,039 billion against revenues of $5,596 billion, which is 18.6 percent, and projects that share reaching 25.8 percent by 2036. The Peterson Foundation's reading of those figures notes this is above the previous record set in 1991. Higher inflation lowers the ratio in the near term, and it also raises the cost of refinancing the debt as it rolls over.
What are the arguments for and against treating inflation as an acceptable way to reduce the federal debt burden?
What distinguishes a fiscal outcome produced by an unlegislated mechanism from one produced by appropriations or tax policy, as a matter of democratic accountability?
And what historical precedents exist for Congress responding to a burden reduction that came from prices rather than from growth or surpluses?
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u/Unfair_Surprise_6022 6d ago edited 4d ago
Inflation can assist in reducing debt burden, but the real cost is destroying the economy and possibly social order.
Look at Weimar Germany, Argentina, Zimbabwe as examples.
Large debts leads to currency deflation, rampant inflation and gradual erosion of living standards.
The best way to reduce the US debt is to stop electing GOP, stop starting foreign wars, stop spending a trillion $ a year on the military, and to start taxing the top 1%.
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u/HumorAccomplished611 5d ago
If you inflate the debt away it also means new debt will have higher interest rates so even if you pay down 40 trillion at a 50% reduced rate due to inflation all new debt will cost at least 50% more as you create it.
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u/okteds 5d ago
So you're saying we should time it so that we reach peak inflation just as we balance our budget and turn a surplus, then should move back to normal?
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u/HumorAccomplished611 4d ago edited 4d ago
I imagine the negative consequences would far outweigh the positives.
Not just a math equation to optimize things if you could do it like that. If you were about to balance the budget and turn a surplus you could simply continue that. As your debt goes down you would have a higher demand for the bonds you do issue further making the interest rate even lower speeding up the rate you pay it off.
If youre found to do it on purpose you would have added a risk to your bonds that would be adjusted going forward meaning all borrowing is more expensive and since generally all developed countries run on debt it would be quite bad. Debt is generally good when it grows your country faster than the debt grows (for example early childhood intervention has a return 9x of every dollar spent, so you would want to do all investments like this that return at least 3x what you spend just to grow the economy). so if your borrow rate is worse suddenly its not as good for the country to invest things in itself.
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u/Unfair_Surprise_6022 4d ago
but you are paying on deflated dollars
e.g. a 10 year bond paying 3%, you pay off the debt that bond represents with dollars worth 50% as much, and the bond holder will have lost half their principal while only making a small amount of interest. It's not a recommended practice, but there are those who will suggest it's a way out.
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u/CursedNobleman 5d ago
Some of that is fair, but taxes need to be raised on more than the top 1%, and half of the gov spending is on healthcare and Social Security. Military spending is miniscule compared to that.
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u/sllewgh 5d ago
stop electing GOP
It's not that simple. The national debt has climbed steadily with no meaningful difference between when Democrats and Republicans hold more power.
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u/-Clayburn 5d ago
Most of the debt has been George W. Bush and Donald Trump. Other than that, Obama was the only one that contributed close to the same, and that's arguably because of coming off the bad economy and tax cuts of the Bush administration. (Plus the huge jump in interest payments caused by Bush's massive increase.)
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u/Slicelker 5d ago
You’re missing the latest GOP presidency there.
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u/sllewgh 5d ago
No, not really. Trump's presidency has been the worst disaster in our nation's history for sure, but the trend of the last half century is still pretty clear. The data doesn't support the argument that having Democrats in power makes a meaningful difference in the accumulation of our debt. You could certainly argue it would be good to get Trump, specifically, out of office, but there are a million reasons for that.
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u/ubermence 5d ago
Are you factoring debt that was taken on by previous presidents (or wars, or massive revenue cuts, or cleaning up the worst financial crisis since the Great Depression) when evaluating how much a later president has spent?
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u/sllewgh 5d ago
I'm not talking about spending, I'm talking about debt. Check out the link.
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u/ubermence 5d ago
I’m sorry, how do you think we accumulate debt?
What in your link address what I asked?
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u/Dry-Season-522 5d ago
Inflation is a tax on the poor, no way around it. The poor have their wealth in cash, the rich have their wealth in assets. When there's inflation, assets keep pace with inflation and cash is devalued.
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u/JDogg126 6d ago
The problem with reducing everything to maths is the loss of humanity. Inflation hurts the people that government exists to serve. Borrowing recklessly as a government also hurts the people that government is supposed to serve. The real solution to debt is raising taxes so more borrowing isn’t needed and taking actions to reduce the everyday costs to live in this country.
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u/kinkgirlwriter 5d ago
Inflation hurts the people that government exists to serve.
Wouldn't it be neat if government really did exist to serve the people? So much could be done to improve lives across the planet.
Instead we have a greedy few running things for the benefit of the greedy few while the rest of work to keep it all moving.
It's pretty gross.
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u/JDogg126 5d ago
It is gross what has happened here.
But also worth remembering words from the past that might guide us now.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness. That, to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That, whenever any form of government becomes destructive of these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles, and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.”
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u/JuniorFarcity 4d ago
Until you fix what’s causing the problem, any “solution” is a Ponzi scheme.
We spend too much and tax too little.
Period.
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u/StedeBonnet1 5d ago
The reason we have $40 Trillion in debt is plain and sinple deficit spending monetized by the FED. Congress (both sides) have been spending more than revenue since WW2 by about 3%. That excess spending cause the FED to print money which causes inflation and debt. The simplist way to eliminate the debt to to stop deficit spending. If we reduced spending growth to 1% and grew the economy at 3% we could balance the budget and reduce the debt without "cutting" spending and without raising taxes. Congress just needs the political will to do so.
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u/The_Law_of_Pizza 5d ago
The "Fed" is not an acronym and isn't to be in all caps.
It's just shorthand for the Federal Reserve.
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