$40 trillion debt. $2 trillion deficits. Inflation becomes the escape route. The bond market is demanding change and no one in DC is listening to them.

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The debt problem has reached the point where fighting inflation aggressively can make the fiscal problem worse.

Prominent US monetary economist Charles Calomiris warned in 2023 that the US fiscal path was already unsustainable.

He said that surging debt and deficits would eventually lead to investors becoming unwilling to finance this madness, forcing the Fed to step in and print the difference.

“There is no interest rate where we could sustain these deficits going forward.”

Fast forward to today, and the whole situation has gotten way worse.

Debt is approaching $40T, deficits are running around $2T, interest expenses are exploding and foreign demand for USTs is weakening.

Trump said it best:

“Inflation can pay down debt very rapidly.”

He is right… The US has reached a point where inflation isn’t just the problem anymore.

Inflation is becoming the cure to overindebtedness.

You either allow inflation to erode the real value of the debt, or you fight inflation with higher rates and make the fiscal situation even worse.

We don’t own enough hard assets for what’s coming.

Trump just soft-launched higher inflation as the new solution for rebalancing $40 trillion national debt

It was an outcome that droves of economists warned was coming: higher inflation being tolerated—consciously or otherwise—to bring down the value of America’s $40 trillion national debt.

President Trump and his second administration haven’t been short of ideas on how to rebalance the national debt, which now demands $2 trillion in interest payments a year. The White House suggested everything from tariffs to visa revenues might be directed toward the debt accumulated by both Republican and Democrat governments.

The key metric is the U.S. debt-to-GDP ratio, currently at more than 120%. When that balance tips too far, it signals that a nation is borrowing beyond its economic growth, and higher risk premiums become attached to lending as a result.

Raising revenues through tariffs, for example, would have addressed the balance by lowering debt. Economic growth could also impact the ratio from the other side. Trump and key members of his team, such as Treasury Secretary Scott Bessent, have suggested this is now the path forward to allay any debt concerns.

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