[fauigerzigerk]

*>Why would the borrower ever aggressively inflate away its debt, as opposed to gradually inflating it away?

Because if it happens gradually it doesn't work as lenders would demand gradually higher interest rates every time a debt tranche is rolled over.

I have looked up the terms of credit default swaps and it turns out that inflating debt away does not constitute formal default in the CDS market. Formal default (a so called credit event) only results from missing a payment or restructuring the terms of payment.