Monday, October 5th, 2026
Bill Bonner, from Ardmore, Ireland
Will wonders never cease!
Inflation is being rehabilitated. It used to be a bad thing. A proper villain. A swindler. Now...it is the nation’s savior.
From 1945 to 1980, real interest rates were negative about half the time in the US. That translated into a yearly reduction of debt-to-GDP levels by about 3-4%. The gross federal debt-to-GDP ratio in the US was 120% in 1946. Through ‘financial repression’ (negative real rates) that ratio dropped to 60% by 1956. The economy ran very hot. By 1981, the ratio was just 31%.
Last week...we left you on the ledge, wondering if it were time to jump. Our insight was that the feds can no longer ‘inflate their way out’ of the debt trap. And yet, as Dan shows us, that’s just what they did in the 35 years after WWII.
And now, POTUS aims to do it again.
Fortune:
Trump just soft-launched higher inflation as the new solution for rebalancing the $40 trillion U.S. national debt
It was a point Trump touched on in a recent interview with Time. In the past, he said, lower rates made borrowing cheaper. He added that in the current period, where the Fed has recently increased rates, “you can do it through other means. I know I’m the best in the world. The best—I don’t want to tell you what those means are, but you can pay off the debt through other means.”
Trump also said something that will prick the ears of economists: “You know, inflation, certain levels of inflation, will also pay off that debt very rapidly. Very rapidly.”
The ‘other means’ he fails to identify are the familiar ones: borrow, spend and print. And count on ‘inflation’ to lower your debt. But we’ve got bad news for Trump. That was then. This is now.
Back then, the US economy was growing, grosso modo, about twice to three times as fast as it is now. It was real growth — from factories, sweat and babies — not just AI speculation. And it was funded by real money. People invested their savings carefully...and expected a decent return.
This was before the economy — including our political economy — was ruined by fake money. Incomes rose with GDP. Tax receipts rose too. And not everybody was disabled or retired.
Yes, the US ended WWII with about as much debt/GDP as we have now. But almost overnight, it stopped the spending spree. The welfare state was still a toddler. And Eisenhower, who knew better than almost anyone how much military spending we needed, cut it by a third.
Today is in many respects the opposite situation. Yes, we have a trash mountain of debt...just as we did in 1946. But after the war ended, the budget was more or less balanced for the next 25 years. It wasn’t until the funny money started up in 1971 that deficits became routine. And today, they’re in the $1.5 - $2 trillion range.
One thing the two periods — then and now — have in common is the PRIMARY TREND. Interest rates hit a low after the war and then rose for the next 35 years, finally hitting 13% in 1980. We are most likely at the beginning of another long cycle of rising inflation and interest rates.
But high interest rates are one thing when your economy is booming, your budget is balanced and you can refinance debts from real savings. When you are adding a trillion in debt every five months...it’s a whole different thing.
If the feds were actually bringing order to the federal budget, investors could take their meager coupons in good grace. The 10-year note is priced today to pay out a net, after consumer inflation, of only 1.8%. That is not good, but no cause for panic.
The alarm sounds when they read the news and discover that the feds haven’t the slightest inclination to balance their books. Instead, they are planning to borrow, spend, and print until the cows come home.
‘Inflation will get worse,’ guesses the savvy investor; he may have bought US Treasuries, but he is not a complete fool.
As the feds inflate, interest rates rise...deflating the whole kit and caboodle of credit-based prices. The feds add $...and Mr. Market subtracts $2 in higher interest charges.
What this means is that ‘inflation’ no longer does the job it was intended to do. That is, it no longer robs the unsuspecting plain people to cover the feds’ out-of-control expenses; it robs itself too.
This will come as a big disappointment to POTUS. The feds can still ‘print’...but the printing produces higher rates that cripple the economy, increase the interest on the national debt, and reduce real federal tax receipts.
The swindle swindles the swindler as well as the public.
Regards,
Bill Bonner
"We have complicated every simple gift of the Gods".
Diogenes
Looking forward to Bill's thoughts how this money-printing, over-spending, war-making, debt-increasing, perpetual dollar-inflating, ever-higher interest rates; rising fuel and food prices will end.
My guess: Not well