A commenter points to an essay by Rob Arnott.

The lion’s share of the debt reduction may well be accomplished through reflation. We can eliminate half of our debt in 15 years if our inflation runs 5% higher than our trading partners, and if our real GDP growth keeps pace despite the inflation. Thus, if our partners are running at 3%, then an 8% annual inflation rate would do the trick. To keep debt service costs, we need to persuade our creditors that we’re serious about a strong dollar, even as we work to weaken the dollar…This is not a smooth and comfortable road, but it is the only politically expedient path.

I think it is important to note that anticipated inflation and unanticipated inflation have different effects. Unanticipated inflation reduces the real value of debt quite powerfully. Inflation that was anticipated, and thereby priced into interest rates, not so much.

Later, he says this:

the developed world has huge debt and demographic problems. But many emerging markets are the opposite with younger populations and foreign reserves instead of debt. A case can be made to invest significantly more assets in the emerging markets as their comparative advantage becomes increasingly self evident…After an immense rally in emerging markets stocks and bonds in 2009, this is not a “buy now” recommendation. But…slowly shift from a developed markets portfolio to one more representative of the size and growth of emerging market economies today and tomorrow.

A friend recently reminded me that a classic inflation hedge is real estate. It is difficult to invest in emerging market real estate in an informed way. But in principle, that may be the best way to hedge against our future as a Banana Republic.