As you get older, the idea of never worrying about your money and receiving a predictable income that shows up every month regardless of market conditions gets very appealing.
When I was a kid, I remember my grandmother had all her small savings in CDs, collecting a small interest every month with joy. That was the only investment she would consider. She kept rolling that investment until the day she passed away. As she got older, her income could not cover her expenses. Her dollars quietly would buy only half what they could buy decades earlier. And she never noticed it, getting poorer slowly.
My grandmother was happy her money was safe. And in a sense her money was safe. The number of dollars she had at the bank never fell. But no one promised her the dollars would keep what they buy. These are very different promises, and a lot of us never notice the difference.
A few times in the last hundred years the dollars have slipped badly. During World War II, the United States government was running massive deficits and it heavily relied on war bonds to finance the war machine. Government heavily advertised them, and you could see the posters everywhere. Out of patriotic duty, 85 million Americans bought these bonds, raising $185.7 billion.
Government paid back every dollar it promised with interest. But the postwar inflation made the bond a losing investment. A family that bought the bonds in June 1944 and held them to maturity lost 13% in real purchasing power.
At its peak, the government debt was over 120% of GDP. Between 1946 and 1955, prices rose by nearly 40%. What prevented the inflation from being even worse was economic growth after the war and disciplined government spending. By 1981, US debt as percentage of GDP had dropped to 32%.
The situation was even worse in the UK. It came out of the war with a debt more than 2.5 times the size of its economy, and fewer prospects for economic growth in the decades that followed. In the same period between 1946 and 1955, prices rose by 55%. With economic growth lower than that of the US, even with spending discipline in place for decades, UK debt was still elevated at 62% of the economy by 1972.
The next time dollar value plummeted was in the 1970s. From 1966 to 1981, prices almost tripled. People who trusted the government with their dollars and purchased long-term government bonds in the mid-1960s lost badly.
If you had asked my grandmother, you did the right thing and kept your money safe. You got every single dollar back, plus interest. But in reality, $1,000 kept in 10-year treasuries from 1966 to 1981 had grown to $1,770, but its purchasing power had shrunk by 40%. $1,000 of groceries in 1966 cost almost $3,000 by 1981.
Another troubling observation this time around was that the government did not have the same discipline in curbing spending as it did after World War II. After decades of declining debt as a share of the economy, in the 1970s the debt stood still at around a third of the economy even with inflation running double digits.
The third time the dollar value slipped away was during the Covid years, and its impact is still felt today. For more than a decade before 2020, prices rose under 2% a year, and no one thought much about inflation. Then within a few years prices jumped almost 30%. $1,000 worth of groceries in January 2020 costs about $1,300 today.
Asset inflation was much higher. The US stock market grew by 138% from January 2020. Houses on average are almost 60% more expensive compared with where they stood in January 2020. Had you invested $1,000 in gold, your investment would have ballooned to about $2,880.
But people who bought 10-year government bonds in January 2020 saw the value of their investment decline. $1,000 kept in 10-year treasuries from January 2020 was worth only about $960 by the end of 2025. After adjusting for inflation, its real value has gone down to about $760.
US government debt crossed $40 trillion on August 18, 2026, more than 120% of the size of the economy. The US debt today has surpassed the debt at the peak of World War II as a percent of GDP.
What makes this time different is that there is little prospect for the kind of economic growth we experienced after the war, and no sign the government is planning to curb spending like it did back then. Almost all the money collected through taxes is spent on benefit programs and the interest on debt. Anything spent on defense, foreign aid, and the thousands of programs Congress spends money on is in effect done with borrowed money.
The big question is how this is all going to end, and what you can do to make sure you are not the one holding the paper this time.
With long-term growth forecast under 2 percent by the government's own budget office, and no real prospect of cutting spending, the easiest lever left to address the mounting debt is currency debasement. Same lever governments have used repeatedly throughout history. In the last centuries of the Roman Empire, emperors paid their bills by mixing copper into the silver coin. Under Nero the denarius was about 90 percent silver. Two hundred years later it was less than 5 percent silver, a copper coin with a thin silver coating. The state paid its soldiers in the new coin, and prices rose.
I don't see a crisis coming. It will all happen slowly and quietly, and most people will not notice. Letting prices run a little over the interest the government pays on its debt reduces debt as a percentage of GDP over decades. If prices run just 2 points above what the government pays, that alone, with nothing else changing, could take the current debt from about 123% of the economy to about 70% in thirty years.
That is how the debt gets addressed. Rates get locked when inflation seems tamed, only for inflation to show its ugly head. That is what happened to the people holding long-term bonds in 1944, in 1966, and in 2020.
Income producing assets that are tied to inflation are relatively immune from currency debasement. Long term bonds issued by governments and corporations are not. If you are holding these in a personal account subject to annual income tax, the returns will look even worse. You are taxed on income when your money buys even less, making the loss even worse.
My grandmother was never wrong about her savings being safe in CDs. She got paid every month until the day she passed away. Her interest bought a little less every month.
Sources
Brunet, Hilt, and Jaremski (NBER Working Paper 31969) document that more than 85 million Americans bought World War II war bonds, raising $185.7 billion, and that a June 1944 Series E bond held to maturity returned about 13 percent less in purchasing power than was paid in. https://www.nber.org/papers/w31969
Hall and Sargent (American Economic Journal: Macroeconomics, 2011) report the postwar price level rose 37.8 percent between 1946 and 1955 and decompose the 1945-1974 fall in debt to GDP: growth and primary surpluses did about four fifths of the work, inflation about a fifth. https://www.aeaweb.org/articles?id=10.1257/mac.3.3.192
Gross federal debt peaked at about 122 percent of GDP in fiscal 1946 and reached its postwar low of 32.5 percent in 1981, per the Congressional Research Service analysis of OMB Historical Table 7.1; gross debt stood near 123 percent of GDP in fiscal 2025 and total public debt crossed $40 trillion on August 18, 2026, per Treasury Fiscal Data. https://www.everycrsreport.com/reports/RL34712.html and https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/
United Kingdom debt peaked at about 252 percent of GDP in 1946 and fell to 62 percent by 1971-72 per the Office for Budget Responsibility; UK retail prices rose about 55 percent between 1946 and 1955 on the Office for National Statistics long-run index. https://obr.uk/box/post-world-war-ii-debt-reduction/ and https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/cdko/mm23
The 1966-1981 and 2020-2025 Treasury figures are computed from the NYU Stern (Damodaran) annual 10-year Treasury total-return series deflated by BLS CPI-U: 1966-1981 nominal +76.7 percent against prices +195.6 percent, a real loss of 40 percent; January 2020 to end-2025, $1,000 became about $963 in dollars and about $764 in January 2020 buying power. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html and https://fred.stlouisfed.org/series/CPIAUCNS
Gross federal debt as a share of GDP moved from 35.5 percent in fiscal 1970 to about 32 percent at the start of the 1980s, per OMB data on FRED. https://fred.stlouisfed.org/series/GFDGDPA188S
Consumer prices rose 29.4 percent from January 2020 to July 2026 (CPI-U 257.971 to 333.918), and averaged under 2 percent a year in the decade before 2020, per the Bureau of Labor Statistics. https://fred.stlouisfed.org/series/CPIAUCNS
The S&P 500 closed at 3,231 on December 31, 2019 and 7,686 on August 31, 2026 (price index, dividends excluded), a gain of about 138 percent. https://fred.stlouisfed.org/series/SP500
The S&P Cotality Case-Shiller U.S. National Home Price Index rose from 212.4 in January 2020 to 336.7 in June 2026, about 58.5 percent. https://fred.stlouisfed.org/series/CSUSHPINSA
Gold traded near $4,445 an ounce on August 31, 2026 against about $1,517 to $1,586 in January 2020, so $1,000 of gold bought in January 2020 is worth roughly $2,880. https://www.jmbullion.com/charts/gold-price/ and https://pricegold.net/2020/january/
In fiscal 2025 the federal government collected $5.234 trillion, mandatory spending totaled $4.2 trillion and net interest about $1 trillion (crossing $1 trillion for the first time and exceeding defense), so mandatory spending plus interest consumed about 98 percent of receipts, per the Congressional Budget Office and the final Monthly Treasury Statement. https://www.cbo.gov/publication/61307 and https://www.cbo.gov/publication/62286
The Congressional Budget Office's long-term baseline assumes real GDP growth averaging 1.6 percent a year over 2025 to 2055. https://www.cbo.gov/publication/61270
The average interest rate on total interest-bearing federal debt was about 3.4 percent in 2025 per Treasury Fiscal Data; the illustration that a 2-point gap between inflation and that rate would take debt from 123 percent of GDP to about 70 percent over thirty years is (1.035 / 1.055) to the 30th power, holding growth and deficits aside. https://fiscaldata.treasury.gov/datasets/average-interest-rates-treasury-securities/
The silver content of the Roman denarius fell from about 90 percent under Nero to under 5 percent by the reign of Gallienus, with the replacement coin reduced to silver-washed copper by about 270 CE, per Kenneth Harl, Coinage in the Roman Economy, and the numismatic summaries linked here. https://www.ngccoin.com/news/article/6842/NGC-ancient-coins/
Reinhart and Sbrancia (NBER Working Paper 16893, The Liquidation of Government Debt) document across dozens of advanced-economy episodes since 1945 that governments have reduced debt burdens through interest rates held below inflation; for the United States the effect averaged 3.2 percent of GDP a year in liquidation years, and for the United Kingdom 3.6 percent. https://www.nber.org/papers/w16893
The Congressional Budget Office's Monthly Budget Review for July 2026 reports a deficit of about $1.8 trillion in the first ten months of fiscal 2026, $169 billion more than the same period a year earlier. https://www.cbo.gov/publication/61983
Note on price measures: the grocery figures use the all-items CPI-U; the BLS food-at-home index rose within a few points of the all-items index over both the 1966-1981 and 2020-2026 windows. The gold figure uses the January 2020 price range of roughly $1,517 to $1,586 an ounce; at the mid-January level the $1,000 becomes about $2,880.
