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Are you sure issuing money to pay off debt leads to inflation? Citation needed. I assume you would cite the quantity theory of money [1], which says that "the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply." Using the quantity theory of money as your model, how do you define the size of the money supply? Do you include or exclude government debt? It is a highly liquid financial asset, so maybe it should be included. Maybe not at par, but at some discount. If it is included at par, then monetizing the debt (issuing new money and buying debt with it) [2] does not change the money supply. Here's the math: money supply is M + D (money + debt), and you monetize X dollars of debt, then the new money supply is (M + X) + (D - X), which is equal to M + D. Therefore, according to the model, we should not expect inflation. Note that, in the US in the last 10 years, the Federal Reserve monetized trillions of dollars of debt [3]. Has there been hyperinflation, as you would claim? [1] https://en.wikipedia.org/wiki/Quantity_theory_of_money [2] https://en.wikipedia.org/wiki/Monetization#Debt_monetization [3] https://en.wikipedia.org/wiki/Quantitative_easing#US_QE1,_QE... |