if federal deficits are first definitively placed on a diminishing path, then a quiet surge of unexpected inflation could help in reducing the past debts. But on the current U.S. trajectory of a steadily-rising debt/GDP ratio over the next few decades, inflation isn’t the answer–and could end up just being another part of the problem.
He links to analyses that support this conclusion.
There’s also the problem of the maturity structure. We should migrate everything over to 30-year Treasurys now so that we have the option to inflate rather than default later.
None of the politicians who are in office today will be in office when our maturity problem shows it’s head, so it’s unlikely they would do that. They are not likely to do anything that will make us worse off while they are in office, even if it means making us better off down the road when they are out of office.
I don’t believe that’s actually possible. The rates on long term treasuries are so low now because:
1) Supply/demand. The U.S. does not sell very many 30 year treasuries. If the supply suddenly increased, the prices would fall (and rates would go up).
2) Signaling. An attempt to shift restructure into long-term debt would signal that the U.S. might try to inflate its way out of debt — which would spook buyers and therefore also help raise rates.
In short, if the U.S. tried to ‘go long’ on a large scale, long-term treasury rates would spike before it managed to make the shift.
OK, I don’t disagree, so “as much as possible” then. And the inability to borrow much long is good evidence that we are screwed.
Ah the eternal titanic debt battle: growth and inflation vs interest rates.
The crucial point is that long-term, these are powerful levers. Compounding and all that.
With the exception of the steadily rising prices charged by by medical providers, nothing else matters nearly so much. The social security “deficit” is pocket change. Any discretionary choices except perhaps defense, far and away even more so.