Jim Rickards, author of Currency Wars, argues that the US government’s more than $40 trillion national debt is unlikely to be resolved by "paying it back". The real solution is more likely inflation. He believes that as the yield on the US 10-year Treasury bond climbs to its highest level since 2002 and global bond markets continue to sell off, Washington faces not a debt repayment problem, but how to "digest" the debt through higher nominal economic growth and a lower real debt burden, which will ultimately be borne by holders of US dollars.

Rickards stated bluntly in an interview: "You don’t have to pay off the national debt. We will not pay off the national debt. What you do is roll it over at a reasonable interest rate." He pointed out that the US government’s annual interest expense alone is about $1 trillion, and as yields rise, the cost of refinancing debt is becoming increASIngly high. On Thursday, the US 10-year Treasury yield hit 5.34%, the highest since 2002; the 30-year UK Treasury yield also broke above 6% for the first time since 1998, and the Bloomberg Global Aggregate Bond Index posted its worst quarterly performance since 2024.

Debt Will Not Disappear

Rickards contends that the real solution is neither spending cuts nor principal repayment, but inflation. He traces this logic back to the change in the US debt-to-GDP ratio after World War II. According to St. Louis Fed data, US federal debt reached roughly 118% of GDP in 1946 and fell to around 31% by 1981. Yet he stresses that debt itself did not stop growing; what changed was the dollar-denominated size of the economy, and much of that growth came from rising prices.

"Debt did not go down, debt tripled, and it was not that the deficit went down," Rickards said. "What changed was GDP. But when we talk about debt, we are not talking about real GDP, we are talking about nominal GDP. Nominal GDP = real GDP + inflation." In his view, inflation naturally benefits debtors for a heavily indebted country like the United States, because "you owe the same nominal amount of dollars, but those dollars have lower purchASIng power."

Rickards also points out that while the Fed is ostensibly fighting inflation, the long-run math of debt may override policy commitments. The Fed raised interest rates in September for the first time since 2023, and Chair Walsh stated inflation remains "too high... for too long". Still, Rickards believes that over decades, the relationship between debt and inflation will ultimately determine the outcome.

Fixed-income Groups Suffer the Most

Rickards' judgment can also be seen in US household financial data. Data from the Bureau of Economic Analysis shows that inflation-adjusted US consumer spending rose 0.6% month-on-month in August, the largest increase since March 2025; yet inflation-adjusted income saw no growth, and the savings rate dropped to 4.1%, the lowest since 2022.

He says inflation does not need to be extreme to cause real harm to household assets. "3% inflation will cut the value of the dollar in half in about 24 years," Rickards said. "If you stretch this over a 48-year career, two-thirds or three-quarters of purchASIng power will vanish." He adds that the situation worsens at 4% or 5% inflation, "Your dollars are like ice cubes melting in your hand."

In his opinion, retirees and fixed-income groups are hit hardest because wages and benefit adjustments always lag behind price increases. "Social Security benefits are adjusted every year, but it is a backward-looking adjustment," he said. "Any Social Security increase in 2027 is based on 2026 inflation. You are always one step behind."

Why Gold Is Seen as a Hedge

Rickards argues that gold proved its value in the 2022 freeze of Russia’s foreign exchange reserves. Back then, Western governments froze roughly $300 billion of Russia’s overseas reserves, while Russia’s gold held domestically remained untouchable. "Russia got more than $150 billion in mark-to-market profits on gold," he said. "First, the US could not get hold of it; second, markets worried the US Treasury might seize your Treasury assets, so gold rose. Russia made a huge profit on gold, and it did exactly what it was supposed to do."

He mentions that as of August 1, the Central Bank of Russia held approximately 73.2 million ounces of gold. Calculated at roughly $1,900 per ounce at the start of 2022 versus around $4,160 currently, the value of this gold position has increased by about $165 billion. Gold hit an all-time high of $5,589.38 per ounce on January 28, and was still trading near $4,158 on Thursday (Oct 1), markedly higher than around $3,866 one year ago.

Rickards does not think central banks will be the direct driver of the next major gold rally, yet he believes sustained central bank buying provides a floor for gold prices. "It will not create a skyrocketing rally," he said. "But it builds a floor." In his view, this is an "asymmetric trade", because "the downside is limited, central banks are always there buying to underpin prices". Still, he warns that investors must hold physical gold, not gold futures, unallocated gold contracts, options or gold ETFs. "If you hold those, you do not own gold; you own a contract."

Slower Inflation Does Not Mean Falling Prices

Although the US core PCE data this week came in slightly cooler, Rickards does not believe the inflation story is over. US core PCE rose 0.2% month-on-month and 3.0% year-on-year in August, below economists’ forecast of 3.3%. As a result, market odds of another Fed rate hike in October fell from 70.9% one week earlier to 34.9% on Wednesday, according to CME FedWatch data.

Rickards expects the Fed to hold rates steady at its meeting on October 27-28, yet another rate hike may come in December. "They will most likely stay on hold in October," he said. "A hike may come in December." He also emphASIzes that falling inflation does not equal falling prices. "If inflation drops from 3.7% to 3.4%, the New York Times will say inflation is down. But prices have not fallen; they are just rising more slowly."

He notes that current price levels remain far above those before the 2022 inflation surge. Data from the US Bureau of Labor Statistics shows that the annual US inflation rate once peaked at 9.1% in 2022.

US Dollar Shortages, Japanese Bond Pressure and Energy-driven Risks

Rickards also turns his attention to global US dollar liquidity and ASIan markets. China continues to increase its gold holdings. Data from the State Administration of Foreign Exchange and the World Gold Council shows that as of August, the People’s Bank of China held 2,387 tons of gold, marking the 22nd consecutive month of increases. World Gold Council data shows that global central banks purchased roughly 1,000 tons of gold annually over the past four years.

Japanese bond markets are also putting pressure on global carry trades. The yield on Japan’s 10-year government bond rose to 3% last month for the first time since 1996, which may disrupt the "yen carry trade" of borrowing yen at low cost to invest overseas. Rickards expects smart money to exit early "before the crowd stampedes". He is skeptical about US Treasury Secretary Scott Bessent’s remarks in support of the yen, stating, "The dealer is not the Treasury; it is the market."

Rickards believes the next upward push for inflation may come from energy. In September, the diesel crack spread — the price difference between crude oil and diesel — hit a record around $110 per barrel. JPMorgan estimates that Middle East crude oil exports have recovered to 98% of pre-war levels, yet finished fuel supplies have only recovered to 58%. Rickards says spot crude oil for immediate delivery is already at $130 to $140 per barrel, far above Brent crude futures near $100 on Thursday.

"Everything you buy ultimately gets delivered to you by trucks, and trucks burn diesel," he said. "The more expensive diesel gets, the more expensive everything you buy becomes." In his view, amid currency devaluation and inflation pressure, the safest approach remains holding physical assets, including real estate, gold, silver and other hard assets. "Even if the purchASIng power of the US dollar falls, your assets rise. That is the way to survive."

Rickards also said he will further explain in the interview whether Washington could freeze Americans’ gold holdings, as well as the only money advice he would give his children.