We are stealing from our children and grandchildren. Soon half of the budget will be spent on interest payments. We can not afford to run up debt like we are. We hear these things daily, and all are true. Yet the government keeps borrowing and spending, seemingly unconcerned with the national debt. Why? Because the government has a card up its sleeve: Inflation.

The national debt can be tamed with inflation. At a modest 5% inflation, $1000. becomes worth $775. in 5 years, making its burden nearly 25% less in a short period of time. It 10 years the value of the $1000. drops to less than $600. This is what will happen to our national debt. It will never be repaid, it will be inflated into obscurity.

This method is not without risks or problems. Mainly, inflation destroys the value of paper assets, such as the cash savings of everyone and holders of debt, including government bonds, mortgages, and private debt. Destruction of the wealth of citizens may lead to unrest. The gamble is that the government will create more dependents than it angers savers.

While it will destroy the wealth of its citizens, the government will be enriched by having the value of its debt reduced by inflation. So don’t expect the government to get too excited about curbing inflation, no matter how much hand wringing they do.

Of course, continued deficit spending can cause the debt to accumulate even faster than inflation eliminates it. Right now there is absolutely no indication the government is at all interested in slowing, freezing or even cutting spending. So insolvency, default, bankruptcy, currency devaluation, and hyper-inflation might be in the future.

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