Since entering the presidential race, Donald Trump has been all over the economic map, with fantasy plans like getting Mexico to pay for a wall between the two countries.
But when Trump starts talking about how the U.S. never has to default because we “print the money,” he’s finally pointing to an economic strategy he could actually execute: The Trump ‘inflation balloon.’ If elected, Trump—the king of reneging on debt–would likely do everything he could to pump up the money supply. His goal: To create a rapid and unexpected inflationary surge that would transfer wealth from creditors to debtors.
Trump has already said that he would likely replace Federal Reserve Chairman Janet Yellen, as well as auditing the Fed and running bigger deficits. Taken together, President Trump could engineer an inflationary spiral with little difficulty compared to fixing basic economic problems.
Unexpected inflation makes it easier for debtors to pay back debt, especially when interest rates are fixed and the debt is in the national currency. As a result, in the short-term, the Trump inflation balloon would temporarily help the United States, the world’s biggest debtor country, and hurt China, Germany, and Japan, all creditor nations.
However, history shows that a Trump inflation balloon would end disastrously, sending interest rates soaring, impoverishing the next generation, and potentially leading to global conflict.
Politically, progressives need to be wary of the Trump inflation balloon. The idea of higher inflation will appeal to millions of Americans who have seen their student debt and auto loans soar by 81% since 2007, while their wages have stagnated. To a new graduate struggling to pay back a fixed-rate student loan, a burst of inflation would seem mighty attractive right now.
To fight back, progressive candidates need to stress the importance of growth and innovation for reducing the burden of debt. Rising real wages, propelled by higher productivity, would raise living standards for today’s voters and their children without the need to borrow.
By contrast, a Trump inflation balloon would bring the U.S. back to the 1970s, a time when the misery index—the inflation rate plus the unemployment rate—was sky-high. That would be a disaster.