Facing stagnation since the 1990s, Japan's central bank and domestic institutions bought nearly all its debt. The U.S. is now on a similar path, aiming to inflate its debt away relative to GDP, with Japan providing a historical playbook for this soft default.

Instead of an explicit default, governments often employ 'financial repression.' This strategy, a 'soft default,' involves policies that lead to inflation, steadily eroding the purchasing power of citizens' savings and effectively stealing their economic value to manage national debt.

Instead of a transparent default, the U.S. government's strategy is to devalue its debt by keeping interest rates below inflation. This policy, known as 'financial repression,' erodes the real value of the dollar, effectively transferring wealth from savers and bondholders to the government to pay down its massive debt.

The endgame for unsustainable government debt is not austerity but monetization. Albert Edwards argues that political weakness and fiscal incontinence will eventually force central banks to print money to cover debts. This 'fiscal dominance' will mark a return to the double-digit inflation levels of the 1970s.

There is no plan to truly pay off America's debt. The actual strategy is to use the invisible tax of inflation to transfer the debt's burden onto citizens who don't understand monetary policy. Those who hold cash and lack hard assets will unknowingly finance the government's deficit by losing their purchasing power over time.

To manage national debt, the government uses "financial repression": keeping interest rates below inflation. This acts as a hidden tax, devaluing savings and hurting the middle class. It's compared to chemotherapy—a painful process that could destroy the economy before it cures the debt problem.

Unlike other countries, the U.S. can't truly become insolvent because, as the world's reserve currency, it can always print more dollars to pay its debts. The actual danger is that the government will devalue the currency through inflation, effectively stealing purchasing power from everyone.

The U.S. faces a massive debt problem with only two politically tenable exits: massive economic growth fueled by AI, or devaluing the debt through inflation. With the AI boom proving slower than hoped, the government is being forced down the path of inflation, using covert methods to avoid public backlash against austerity or default.

As the world's reserve currency, the US can always print money to cover its debts and avoid a technical default. The true danger is not insolvency but the resulting hyperinflation, which devalues the dollar and silently erodes the purchasing power of everyone holding it, both domestically and globally.