@SteveRoth debts/deficits and inflation can both have similar causes, there can be correlations, but they are far too loose to treat debt as predictive or a measure of inflation risk.

debt backed by productive assets is *disinflationary*. debt engendered by effective transfers to the very wealthy is close to noninflationary. debt as an accounting quantity is a very bad measure or target. we’re not interested in the accounting quantity per se, and it doesn’t predict what we *are* interested in.

@SteveRoth “do the SWF-style JCB non-gov equity/bond asset holdings protect Japan from that inflation? If so, how?”

debt backed by (sufficiently) productive assets is disinflationary. 1/

@SteveRoth if the state goes into debt to build infrastructure that reduces production and distribution costs, whatever extra aggregate demand comes from the deficit spending (hard to predict, depends on distribution, regulation, interest rates) can be more than matched by the infrastructure’s contribution to (downward shift of aggregate supply curve). 2/

@SteveRoth if the state goes into debt to buy domestic financial assets that appreciate and/or yield, income flows (broadly construed!) that would otherwise contribute to aggregate demand of the private sector instead accrue to the state, offsetting any contribution to aggregate demand of the initial purchases. 3/

@SteveRoth if the state goes into debt to purchase foreign financial assets, and those appreciate in domestic currency terms or yield FX income flows, the states capacity and likely actual practice to support the value of its own paper by selling FX or foreign assets and purchasing domestic paper increase, disinflationary as an ordinary practice in ordinary times (although sometimes “blood in the water” if initiated during a currency/inflation crisis!) 4/

@SteveRoth it’s just not a good frame, to say debt is inflationary but a SWF is protective. it’s more accurate to say going into debt to build an SWF is disinflationary if the investments are “good” (lots to unpack there!), inflationary if the investments are not. the debt per se can’t be evaluated in its inflationariness independent of what’s going on on the asset side, what it is funding. /fin