"The Government has debts of £1.2trillion and households owe £1.4trillion. But, just as with money in savings accounts, every penny of this is worth less when the country has inflation. If the cost of living rises by 2.9 per cent, all this debt loses is a bit of its value.
Essentially, £34.8billion of national debt and £40.6billion of personal debt is wiped out. You only need to look at the housing market to see how this works. A mortgage of £39,000 would have bought the average home 20 years ago.
Today you would have to borrow £127,500 to buy the same property. Suddenly the debt of £39,000 seems tiny, even though it would have bought you exactly the same thing. Of course, all money borrowed is growing at a rate of interest - but even so, a substantial proportion will still be wiped out because of inflation. And it’s savers’ cash that is being used to fund this gap.
Renowned economists have also noted the sneaky way in which governments use inflation as a form of secret taxation. Milton Friedman, for example, observed that ‘inflation is the one form of taxation that can be imposed without legislation’.
And John Maynard Keynes said: ‘By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.’