The Economist reminds us just how quickly America has been able to make debt disappear in the past.
Thanks to inflation.
Economist: Debt-concerned pundits often cite the example of America’s postwar debt as evidence that such high debt levels can be paid down over time. All that’s needed, they say, is the resolve to put the budget on a sounder path. But in fact, that’s not all that’s needed:
[B]etween 1946 and 1955, the debt/GDP ratio was cut almost in half. The average maturity of the debt in 1946 was 9 years, and the average inflation rate over this period was 4.2%. Hence, inflation reduced the 1946 debt/GDP ratio by almost 40% within a decade.
That’s right, one of the principle ways the country addressed its debtload was to inflate it away. Could, and should, something similar be done today?
Problem is, it may not be so easy this time around given that the nation faces the deflationary forces of de-leveraging citizens and corporations.