While the government engages in complex financial maneuvers to manage debt, the only sustainable solution is genuine economic growth. This means increasing middle-class real wages and productivity, not just manipulating financial markets or relying on asset bubbles like AI.

The common narrative that America's post-WWII economic boom paid off its debt is a myth. IMF research reveals that growth accounted for less than 25% of the debt reduction. The majority was achieved through decades of financial repression, where artificially low interest rates let inflation erode the debt's real value.

When drivers of an "economic miracle"—typically demographics and productivity—inevitably slow, governments often turn to debt to maintain high growth rates. This happened in post-WWII Italy and is happening now in China. It's a dangerous attempt to paper over a structural slowdown, leading to debt sustainability problems.

When national debt grows too large, an economy enters "fiscal dominance." The central bank loses its ability to manage the economy, as raising rates causes hyperinflation to cover debt payments while lowering them creates massive asset bubbles, leaving no good options.

The US successfully used financial repression to pay down WWII debt because of a unique, unprecedented productivity boom and global economic dominance. Today, lacking these factors, applying the same strategy would crush the middle class instead of fostering growth, likely accelerating social unrest.

Global governments are actively pursuing policies (running economies hot, suppressing energy costs, managing rates down) to create a period of artificial prosperity. This is a deliberate strategy to push a massive debt sustainability crisis further into the future, which will feel great until it doesn't.

Governments with massive debt cannot afford to keep interest rates high, as refinancing becomes prohibitively expensive. This forces central banks to lower rates and print money, even when it fuels asset bubbles. The only exits are an unprecedented productivity boom (like from AI) or a devastating economic collapse.

In a world of high debt and low organic growth (from demographics and productivity), the only viable path for governments is to ensure nominal GDP grows. This will likely be achieved through inflationary policies, making official low-inflation forecasts unreliable over the long term.

The optimal strategy for high-debt economies is growing out of the problem. However, this growth pressures the bond market. The key challenge is maintaining this strategy without resorting to politically explosive benefit cuts or inflationary money printing.