Perhaps the best way to solve the debt problem is high inflation
In the world of finance, the debate over liabilities never stops. There is a perception that high inflation is a solution to the problem of indebtedness, because inflation can reduce the real debt of the debtor through the depreciation of the currency. But is this really the best way to do it?
Inflation is an economic phenomenon that causes an overall rise in the purchasing power of a currency due to a decrease in its purchasing power. In the case of high inflation, the nominal value of the liabilities does not change, however, as the money depreciates, the amount of the liabilities will decrease in relation to what they earn. It looks like a person, a business, and even a relief from heavy financial pressure.
High inflation is not cost-free, because it is a forced transfer of wealth from creditors to debtors and depositors to customers. Such transfers are not based on free markets, but on monetary policy. In the long run, inflation will reduce people's desire to save money and reduce people's enthusiasm for investment, thereby reducing the efficiency of China's economic operation and causing serious problems in the distribution of social resources in China.
For individuals, high inflation means an unstable future, as well as a higher cost of living, especially for those who live on regular wages. For companies, high inflation will raise operating expenses, disrupt prices, and make long-term plans difficult to implement. In the case of countries, inflation can alleviate debt pressure in the short term, but in the long run, inflation will weaken the tax base, weaken fiscal order, and then cause social unrest.
High inflation can also create fixed expectations of "inflation expectations". When the market expects inflation to continue, wages and prices will naturally revise accordingly, resulting in a self-fulfilling **. In this case, even if the central bank intends to curb inflation, it will be difficult for the central bank to curb inflation because the expectations for inflation are so deep.
How can we find a balance between inflation and debt? Among them, the combination of soundness and financiality is the key to solving this problem. Moderate inflation is an integral part of economic regulation, but it will never be a fixed way to deal with debt. On the premise of achieving sustainable development, it is necessary to prevent excessive borrowing and expand the tax revenue base by improving productivity and stimulating economic development.
High inflation may be able to alleviate the debt problem temporarily, but it is far from an outright answer. The longer inflation lasts, the greater the negative effect on China's economic development, and it will be detrimental to China's economic development and social stability. This requires policymakers to use inflation as a tool to balance short-term benefits with long-term costs in order to find a healthier and more durable path to development.