Phase 7 — Conditional Solution Space

With evidence gathered, this phase outlines classes of possible pathways for managing the debt. These are not prescriptions but conditional strategies, each with preconditions, trade‑offs, risks and early warning indicators.

Gradual Primary Surpluses with Growth Emphasis

• Preconditions: Sustained political consensus, modest primary surpluses, investment in productivity and r ≤ g.
• Trade‑offs: Requires tax increases or spending restraint, which may slow demand and hurt vulnerable groups.
• Irreversibility Risks: Prolonged austerity can damage human capital and social cohesion.
• Early Warnings: Rising unemployment, slowing productivity, widening inequality.
• Confidence: Moderate — depends on uncertain growth assumptions.

Managed Inflation & Financial Repression

• Preconditions: Tolerance for moderate inflation, capacity to maintain negative real rates, domestic savers with limited alternatives.
• Trade‑offs: Benefits borrowers but erodes savers’ wealth; risks unanchoring expectations.
• Irreversibility Risks: Stagflation and loss of safe‑asset status.
• Early Warnings: Rising inflation expectations, capital outflows, widening term premiums.
• Confidence: Low to moderate — controlling inflation is challenging.

Perpetual Rollover under Safe‑Asset Demand

• Preconditions: Continued global demand for Treasuries; r < g; strong institutions.
• Trade‑offs: Allows ongoing deficits but risks complacency and manufacturing decline【518734610474351†L193-L201】.
• Irreversibility Risks: Loss of safe‑asset status due to geopolitical shocks or fiscal indiscipline.
• Early Warnings: Rising term premiums, declining foreign reserve share, increased gold holdings【203841385617925†L645-L687】.
• Confidence: Moderate — network effects are strong but not permanent.

Structural Growth‑First Strategy

• Preconditions: Broad reforms to raise productivity, investments financed at low interest rates, social consensus.
• Trade‑offs: Higher near‑term debt and uncertain returns.
• Irreversibility Risks: If growth fails to materialize, the debt burden worsens.
• Early Warnings: Slowing productivity despite spending, rising rates.
• Confidence: Moderate — success depends on efficacy of public investments.

Debt Restructuring or Repudiation (Extreme Case)

• Preconditions: Severe fiscal crisis, loss of market access, political willingness.
• Trade‑offs: Immediate relief but damages reputation and triggers contagion.
• Irreversibility Risks: Loss of safe‑asset status and constitutional crises.
• Early Warnings: Surging yields, ratings downgrades, capital flight.
• Confidence: Low — improbable for a sovereign currency issuer like the U.S.

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