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Biden’s invisible debt-forgiveness policy- POLITICO | #socialmedia | #hacking | #aihp

THE BRIGHT SIDE OF INFLATION — Everyone hates inflation. The runaway price hikes of the last several months — to four-decade highs of over 8 percent — torpedoed Americans’ feelings about the economy and crushed President Joe Biden’s poll numbers.

Numbers this high are brutal and unsustainable long-term. They crush spending power as consumers are forced to spend more of their money on essentials like gas and food. That’s why the White House and the U.S. Federal Reserve are scrambling to bring prices down.

But there is at least one good thing that happens with inflation: the burden of existing debt drops.

It seems weird to suggest, especially now, that some inflation can be helpful to millions of Americans carrying student loan, housing, credit card and other kinds of debt. But it can.

It can also make public debt — including the roughly $30 trillion owed by the U.S. — less troubling. (No, the U.S. doesn’t owe anyone that full $30 trillion but let’s not get bogged down.)

It’s an easy economic phenomenon to understand. Well sort of easy. Americans still have enormous debt. But inflation — and the fast growth rates since the pandemic waned — mean that debt actually dropped as a percentage of the total U.S. economy over the last year, according to the Fed.

It’s not because Americans are paying off more or borrowing less. We aren’t. Total household debt in the U.S. rose to nearly $16 trillion in the first quarter of this year, up 1.7 percent from the same period last year driven by a $250 billion increase in mortgage debt, according to Fed data.

But $16 trillion ain’t what it used to be. So in what economists call “real” dollars, the debt is smaller.

We are paying those debts with money that is worth less now than when we borrowed it. Put differently, there are more dollars in the system now, and they are worth less than when much of the debt was accrued.

This quiet, hard-to-notice method of debt forgiveness is among the reasons that more progressive-leaning economists (and some people in the White House) want to see the central bank tap the brakes but not slam them down.

“We want to see job growth that’s sustainable, and we obviously want to see costs go down,” Joelle Gamble, chief economist at the Department of Labor, said Friday on a Twitter Spaces chat hosted by POLITICO. At the same time, she suggested we shouldn’t move too fast to tamp down growth: “There are gains that have been achieved that we do not want to lose.”

Inflation also slices into the percentage of federal debt as a share of the economy, a key metric that investors follow to judge a country’s fiscal health. And that’s happening in the U.S. now: Inflation has reduced the value of outstanding debt as measured in current dollars from when Biden took office.

That happened even as the federal government firehosed trillions of dollars into the economy for Covid relief programs.

But this brings us to the “careful what you wish for” problem. As interest rates go higher, so does the cost of servicing existing debt. So while some inflation can be good for private and public debtors, too much of it is a nightmare.

Welcome to POLITICO Nightly. Reach out with news, tips and ideas at [email protected]. Or contact tonight’s author at [email protected] or on Twitter at @morningmoneyben.