Hugely indebted governments and the friendly relationship with inflation.

[CTO114]

Not usually seen in this light, inflation plays a huge role in a system that is highly indebted.

Inflation silently restructures a system; One would observe that government debt is usually in their nominal currency ( currency usually unadjusted for inflationary trends). So if a certain amount is owed by a government, and inflation runs at 15% annually, that debt reduces by 15%. So what happens is that the debtor pays it's creditor in a currency that has a reduced purchasing power.

This system is quite simply for governments than raising tax rates, or even curtailing her spending to reduce annual debt.

Once this is achieved indebted governments also look to borrow more and increase its overall debt.

Since inflation has been silently siding indebted governments, could we have a situation where governments do little through her fiscal policies to better manage inflation?

[Fortify]

You're missing one key part of the equation. This setup can be offset by loss of trust in the currency of that country, unless it is carefully managed and it has limits. It's a very dangerous game to play as well, because it can become a runaway reaction which can be hard to stop. If trust is lost, then the currency is less desirable and gets dumped. This has the side effect of making imports more expensive and that can cause demand to collapse, leading towards recession unless it is handled. Every central bank usually aims for a manageable amount of inflation which is usually around 3%. Deflation can be equally damaging but is comparatively rare.

[abhiseshakana]

In today modern economic era, this method is nearly impossible to practice. Globalization and open capital market make global investor smart and easily pull out investment , then without trust from investor local currency can sharply depreciate, capital outflow increase and big possibility will triggering a large fiscal crisis. Trust is basic fondation on capital market. Beside that foreign debt usually under USD which not eroded by domestic inflation.

Politically, i think government will think saveral time to use this method to reduce debt because inflation can bring political instability due to social polarization & economic gap enlargement between asset owner and working class, instability happen due to wages increase can not chasing inflation, if its happen continuously, society will loose trust to governmental system, which mean riot and chaos can be happenend anytime.

[bhadz]

Our government looks at these inflations as if it's the burden of the citizens. You know what they're doing? because of the high debt that we've got, they're raising the taxes and doesn't choose to underspend with the budget of the national agencies that have been given with so much budget. The income of the government is even not enough to cover the yearly budget for all of the operation of the government and so, they're going to borrow again in several banks, WB, IMF and others that are known in lending. And that results to a higher inflation we citizens are going to deal with while paying the debt they've borrowed trying to endure the high cost of everything with minimum salary.