That leads to hyper-inflation and econ collapse
Boccia and Lett, 23 (2/1/2023; Romina Boccia is director of budget and entitlement policy at the Cato Institute, where she specializes in federal spending, budget process, economic implications of rising debt, and Social Security and Medicare reform, MA in Economics from George Mason University, Dominik Lett is a Research Associate at the Cato Institute, BA in Political Science from Wichita State University; “The Debt Limit and the High Costs of Debt”; Cato Institute; https://www.cato.org/blog/debt-limit-high-costs-debt) //LVL
Debt Default and Hyperinflation. Alternatively, policymakers might renege on the terms of existing debt or monetize the debt, thus boosting inflation. Both options are extremely unlikely to achieve the intended result of lightening the U.S. debt load. They are too economically costly. Defaulting on the debt is creditors’ worst fear. In most cases, it results in widespread financial chaos. Even if lenders would be willing to extend additional credit, they would demand much higher interest premiums, putting the U.S. government even deeper into the debt hole. The other bad option of inflating away the debt would worsen overall economic performance by reducing the purchasing power of the dollar and by being a de facto tax on savings and other investments. It would also quickly become priced into future bonds as investors would require higher interest rates to make lending profitable. In the worst case, monetizing the debt could lead to Weimar‐style hyperinflation and economic collapse.
Debt is already at economically damaging levels. According to a review of recent economic literature by the Mercatus Center’s Jack Salmon on behalf of Cato, high public debt—defined as a debt‐to‐GDP ratio above 78 percent—has a consistently negative effect on economic growth. As America’s publicly held debt climbs above 100 percent of GDP, the United States is already experiencing slower economic growth from lower productivity through the crowding out effect, elevated interest rates, and less investment due to expectations of higher future taxes to service the debt. Lawmakers should adopt a concrete plan to stabilize U.S. debt as a percentage of GDP through fiscal restraint to unleash economic growth and boost American incomes before a potential fiscal crisis forces their hands. The debt limit is one such leverage point to significantly change the U.S. fiscal trajectory for the better.