It is important to understand the link between debt and inflation

It is often claimed : That inflation makes it possible to reduce debt ratios; But also that a return of inflation would be very difficult to bear given the very high debt ratios. What is it important to understand? What matters most is the relative levels of nominal interest rates and nominal growth. As long as the interest rate is lower than growth, debt ratios spontaneously decline, and there is no debt crisis; for a given level of real growth, what matters most is therefore the real interest rate: Inflation reduces debt ratios provided that nominal interest rates do not react; But central banks norm ally react to inflation by hiking nominal interest rates sharply in order to raise real interest rates: in this configuration, inflation is very dangerous if debt ratios are high. What would happen if inflation returned now? There would be debt crises, unless central banks refrained from reacting.