You're much more familiar with this, and I stand corrected.
I guess that my point was that debt can be inflated nearly out of existence and it has been.
It couldn't for Britain's Napoleonic war debt because Britain was first on the silver standard and then on the gold standard. Gold obviously can't be inflated artificially. Inflating debt out of existence is possible but difficult. If people begin to expect inflation in the next period will be higher than it is in this period, then they change their wage expectations now. That means inflation goes up by even more than expected in the next period - you get accelerating inflation. If you don't stop that, it becomes a problem. That's why most central banks have an inflation target that they try to meet - people expect the target, and banks try and meet the target so people don't change expectations.
Now, it's true you can inflate the real value of debt downwards. But it's not an easy process, and has other consequences. Say you pick 10% as the level you want to keep stable. Sure, you can now run a 10% deficit and not have the real value of debt increase. But at the same time, the savings of every single person with savings is ticking down in real terms by 10% each year. It's not free of consequences, it overwhelmingly hurts savers. This has consequences - people prioritize consumption, investment falls, and your long-run GDP falls because you have less capital and less R&D.
Now, there's debate over what the precise level of inflation should be. I'm partial to a nominal GDP target, which basically says the the central bank should try and make sure that nominal GDP rises by the same amount every year. Given nominal GDP / inflation rate = real GDP, if you have a decrease in real GDP, you obviously need to increase the inflation rate. It's by a predictable amount (determined by the formula), so people always knows what to expect, but it remains variable. Say that you want a 5% nominal GDP growth year on year. That'd cause a central bank to have targeted 7.6% inflation in 2008, sure. But that's a one-off. This year, inflation would only have been 2%; so if your deficit exceeded 2%, it'd still be rising in real terms.
So it's not a one-off easy strategy. It's really slow, and if the interest payment exceeds the inflation for that year, then your debt still isn't shrinking, even in real terms. You can use it to run very small deficits almost indefinitely and remain at constant debt, or you can run neutral budgets and have your debt decrease, but it doesn't really allow you to run whooper deficits in perpetuity.
