Firstly, I want to flag that this prediction is in strong disagreement with market predictions: the rate on a 20-year treasury is 3.85% as I write this, suggesting that investors do not expect a dramatic increase in inflation. This is in one of the largest, most liquid, and most attended-to markets on the planet, the only competition I am aware of being other US Government bonds.
Secondly, the weighted average maturity of US government debt is around five years, to give a concrete value for thinking about how long the US government can have much higher inflation before markets are able to fully react. That’s a moderate amount of time, but if you say that the US government is willing to accept multiple years of 15% inflation (an extremely bold claim), you could still only get a temporary 50% reduction in the debt without fixing the underlying entitlement issues.
Which is why it is very strange that this post assumes as a hard constraint that the US government will fulfill its entitlement obligations. I’m not sure why that is assumed. Faced with the option set “inflation” and “cut Medicare and Social Security”, the government might easily choose Medicare and Social Security. Yes, there have been promises, but they are not very credible. Maybe the inflation target gets set to 3% or 4%, numbers that are still very small, but cuts to the commitments seem as or more plausible as spending expands.
Once you drop that assumed constraint, the option set of the government expands to a wide variety of more acceptable solutions.
Finally, “Inflation is going to be terrifyingly high any day now: buy gold/crypto/my special security” has been a recurrent promise of financial snake oil salesmen for decades. Always be careful when you see people claiming it, particularly if they’re also selling something. Debt fears have a similar pedigree: we might be told to be terrified of 130% now, but I remember back when it was 90%, which turned out to be an Excel error.
They might be right this time, but you should look for a lot more than a single analysis without theoretical justification, which relies heavily on datapoints following legendarily expensive wars. In the period since the 1950s, attitudes towards government defaults have shifted. Monarchies act differently from independent central banks.
Firstly, I want to flag that this prediction is in strong disagreement with market predictions: the rate on a 20-year treasury is 3.85% as I write this, suggesting that investors do not expect a dramatic increase in inflation. This is in one of the largest, most liquid, and most attended-to markets on the planet, the only competition I am aware of being other US Government bonds.
Secondly, the weighted average maturity of US government debt is around five years, to give a concrete value for thinking about how long the US government can have much higher inflation before markets are able to fully react. That’s a moderate amount of time, but if you say that the US government is willing to accept multiple years of 15% inflation (an extremely bold claim), you could still only get a temporary 50% reduction in the debt without fixing the underlying entitlement issues.
Which is why it is very strange that this post assumes as a hard constraint that the US government will fulfill its entitlement obligations. I’m not sure why that is assumed. Faced with the option set “inflation” and “cut Medicare and Social Security”, the government might easily choose Medicare and Social Security. Yes, there have been promises, but they are not very credible. Maybe the inflation target gets set to 3% or 4%, numbers that are still very small, but cuts to the commitments seem as or more plausible as spending expands.
Once you drop that assumed constraint, the option set of the government expands to a wide variety of more acceptable solutions.
Finally, “Inflation is going to be terrifyingly high any day now: buy gold/crypto/my special security” has been a recurrent promise of financial snake oil salesmen for decades. Always be careful when you see people claiming it, particularly if they’re also selling something. Debt fears have a similar pedigree: we might be told to be terrified of 130% now, but I remember back when it was 90%, which turned out to be an Excel error.
They might be right this time, but you should look for a lot more than a single analysis without theoretical justification, which relies heavily on datapoints following legendarily expensive wars. In the period since the 1950s, attitudes towards government defaults have shifted. Monarchies act differently from independent central banks.