On October 1, the president told TIME that inflation will “pay off that debt very rapidly.” The debt is $40 trillion. He named no level and announced no plan. He said growth would help too. Then he described the other mechanism.
Inflation Only Helps A Borrower When It Beats the Rate
Inflation shrinks a debt only when it runs faster than its interest rate. Skeptics of the plan are right about today’s math. Headline CPI is 3.4% for the 12 months through August. The 10-year Treasury yields about 5.3%. That’s roughly 1.9 points above inflation.
Right now, the debt is getting costlier in real terms, not lighter.
Two Ways to Close the Gap
So the math needs one of two changes. Inflation climbs above yields, or yields get held below inflation.
Path one: prices run hot, and a fixed coupon buys less every year. Path two: yields get capped, as they were in the 1940s, and the coupon is set below inflation on purpose.
Either way, savers cover the difference. In the 32% to 37% federal brackets, a 5.3% yield nets about 3.3% to 3.6% after federal income tax. Inflation runs 3.4%.
That coupon barely keeps pace today. It falls behind the moment prices speed up.
Path one: prices run hot, and a fixed coupon buys less every year. Path two: yields get capped, as they were in the 1940s, and the coupon is set below inflation on purpose.
Either way, savers cover the difference. In the 32% to 37% federal brackets, a 5.3% yield nets about 3.3% to 3.6% after federal income tax. Inflation runs 3.4%.
That coupon barely keeps pace today. It falls behind the moment prices speed up.
Here’s the thing. The debt doesn’t need to be forgiven. It only needs to be repaid in dollars that buy less.
Washington Ran This Play in 1946
In 1946, public debt stood at 106% of GDP. The Fed held long-term yields near 2.5% until 1951. Inflation averaged 7.1% from 1947 through 1951. By 1974, the debt was down to 23% of GDP.
A study of that stretch removed budget surpluses, capped rates, and surprise inflation from the math. The ratio would have fallen only to 74%. Capped yields and surprise inflation came out of bondholders’ real returns.
Here’s what’s different. From 1933 to 1974, Americans couldn’t legally own gold bullion. A saver’s exits were narrow: about five ounces of gold coin, plus the rare coins collectors prized.
Own Something That Isn't Part of the Plan
Every road to a smaller debt runs through the dollar. A saver who wants out of that equation needs something that was never part of it.
That’s Empire Money: metal with no issuer, no coupon, and no signature anyone else has to honor.
Before buying, ask three questions. Who holds it? Whose name is on it? Can you take delivery? Good answers to all three beat a good price on any one.
That’s Empire Money: metal with no issuer, no coupon, and no signature anyone else has to honor.
Before buying, ask three questions. Who holds it? Whose name is on it? Can you take delivery? Good answers to all three beat a good price on any one.
The Bill Goes to the Holder
The plan needs someone to hold the promise. It doesn’t need you to.
— U.S. Gold Bureau Team
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byUnited States Gold Bureau