US President Donald Trump believes that inflation, at specific levels, could serve as the «key» to rapidly eroding the American national debt, which has surpassed $40 trillion.
In an interview with TIME magazine, Donald Trump contended that inflation could help swiftly pay down US debt, which has expanded by roughly $11 trillion during the five years he has held executive office.
«You know, inflation. Certain levels of inflation can also pay off that debt very fast. Very, very fast», he pointedly remarked.
Shifting blame
Initially, the American president attributed the debt expansion to his predecessor, Joe Biden, before directing his fire toward the Federal Reserve, while hinting that he holds additional solutions that he chose not to disclose.
«I know I am the best in the world. The best.
I do not want to tell you what that means, but you can pay off the debt in other ways too.
What you can do, however, is pay it off through growth, and we have never had growth like this», Donald Trump stated.
Growth will repay the debt, attacks on the Fed
Donald Trump returned to the theme of economic expansion, arguing that robust US growth momentum will serve as the primary engine for addressing sovereign debt.
Concurrently, he launched fresh broadsides against Fed monetary policy, maintaining that interest rate hikes inflict greater harm on the American economy than inflation itself.
The US president did not clarify what specific rate of inflation he deems acceptable, nor whether he expects the Fed to tolerate higher price pressures to diminish the real value of federal debt.
Earlier in the same interview, however, he had accused Joe Biden of presiding over the «highest inflation in history», claiming he inherited an economy gripped by unprecedented price pressures.
He added that the only remaining challenge is bringing down gasoline prices.
Inflation running higher
Official data from the US Bureau of Labor Statistics (BLS) showed that the headline Consumer Price Index (CPI) rose 3.4% year-over-year through August, while core inflation stood at 2.4%.
On September 16, the Federal Reserve enacted its first rate hike since July 2023, deciding unanimously to raise rates by 25 basis points to a target range of 3.75%-4%.
Kevin Warsh, nominated by Donald Trump to lead the Fed, participated in that unanimous decision.
The American central bank simultaneously signaled another rate increase before year-end.
Donald Trump told TIME that had he been in the position of Kevin Warsh, he likely would have voted against the board's decision, reiterating his call for interest rates at 1% or lower.
On Thursday, the day the interview was published, the yield on the 10-year US Treasury touched 5.34%, its highest level since 2002, before easing to 5.24% at the close.
The debt blueprint and the default threat
These statements by Donald Trump are not without precedent. Having previously branded himself the «king of debt», he has repeatedly floated unorthodox mechanisms for managing federal liabilities.
In May 2016, during a CNBC interview, he suggested that the United States could buy back its own bonds at a discount if interest rates climbed.
That remark was widely interpreted as an implicit threat of sovereign default. Days later, speaking on CNN, Donald Trump attempted to recalibrate his comments.
«You never have to default because you print the money, I hate to tell you», he stated.
A month prior, in an interview with the Washington Post, he had claimed he could eliminate the US national debt, which then stood at $19 trillion, within eight years.
Since then, federal debt has more than doubled, crossing the $40 trillion threshold.
Bond buybacks and Scott Bessent's gambit
The debate over bond buybacks has resurfaced as national debt crossed $40 trillion and long-term yields pushed higher.
Against this backdrop, US Treasury Secretary Scott Bessent tripled the cap on the department's initial expanded bond buyback program to $6 billion.
However, that figure remains modest relative to the borrowing requirements of the federal government.
Annual gross issuance of sovereign debt exceeds $2 trillion, meaning a $6 billion buyback exerts minimal influence on the broader Treasury market.
As market observers noted, US yields continued to climb despite the intervention.
Growth outlook
For his part, Scott Bessent consistently emphasizes growth prospects.
In June 2025, speaking to Margaret Brennan on CBS, he argued that inflation fears were overblown while giving assurances that the US would never default.
A day after the US Treasury confirmed that debt had surpassed $40 trillion, Scott Bessent appeared on CNBC, arguing that the milestone was largely arbitrary and that the US could outgrow the burden.
«There is nothing magical about that number. We can grow our way out of this», he remarked.
«Financial repression» and the covert debt dilution strategy
Behind the rhetoric of growth and inflation lies a broader mechanism: the capacity of governments to erode the real value of sovereign debt by keeping interest rates below inflation.
Earlier analyses pointed out that Scott Bessent has essentially transformed federal obligations into a floating-rate debt structure through increased reliance on short-term and variable-rate instruments.
Those projections anticipated that debt would top $40 trillion by the end of fiscal year 2026; the milestone was ultimately crossed in mid-August, roughly six weeks earlier than anticipated.
In April 2025, Simon White of Bloomberg argued that a combination of higher inflation and a softer dollar, the apparent trajectory of American policy, could help alleviate the real debt burden.
However, he warned that this strategy carries severe hazards.
Unlike Britain's post-World War II deleveraging, policy volatility could undermine global confidence in the dollar-centric international monetary architecture.
Such a development risks triggering capital flight, ultimately worsening the debt burden.
How inflation shifts wealth from savers to the state
In July, analyst Nick Giambruno outlined the mechanics of «financial repression», wherein governments suppress borrowing costs below inflation rates.
When nominal interest rates trail price growth, the real value of sovereign debt declines, while savers suffer an erosion of purchasing power.
Nick Giambruno illustrated that if inflation runs at 9% while interest rates remain at 4%, the resulting five-percentage-point gap functions as an indirect wealth transfer from savers to the US Treasury.
This dynamic compounds annually as long as negative real rates persist.
Historical precedents
This framework has historical precedent.
A Bank for International Settlements (BIS) study published in 2011 estimated that negative real interest rates reduced sovereign debt in the US and Britain by roughly 2% to 3% of GDP annually from the late 1940s through the 1970s.
However, that era operated under fundamentally different institutional arrangements.
The Bretton Woods framework, interest rate ceilings, captive domestic institutional buyers, and capital controls created conditions uniquely suited to financial repression.
The BIS study concluded that financial repression operates most effectively when accompanied by persistent inflation.
The structural roadblock
The core obstacle for Washington today is that modern market conditions do not easily accommodate this playbook.
For financial repression to work, the US Treasury must borrow at rates lower than inflation.
Presently, bond markets are moving in the opposite direction.
The 10-year US Treasury yield sits nearly two percentage points above headline inflation, while annual interest servicing costs on federal debt have crossed $1 trillion.
As legacy debt matures, the Treasury must refinance at prevailing rates.
Consequently, elevated borrowing costs are rapidly bleeding into the broader debt stock, intensifying pressure on the federal budget.
The role of the Federal Reserve
Restoring negative real rates would require either a Federal Reserve willing to cut rates despite rising inflation, or the re-imposition of 1940s-style capital and yield curve controls.
The former scenario reflects Donald Trump's repeated demand for interest rates at 1% or lower, even with persistent price pressures.
The latter would necessitate yield controls alongside policies directing domestic capital into government paper.
Donald Trump did not elaborate on whether such mechanisms are among the «other ways» of retiring debt referenced in his TIME interview.
The pivotal question remains whether the US government can harness growth and inflation to manage a $40 trillion debt load without unleashing market volatility and eroding confidence in the US dollar.
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