I collaborated with Sam Callahan to publish a research report on fiscal dominance:
https://www.lynalden.com/full-steam-ahead-all-aboard-fiscal-dominance/
Discussion
Sweet, thanks for putting this together!
Serious reading. Thank you, Lyn 🤝
“Fiscal dominance is an economic condition that occurs when a country’s debt and deficit levels are sufficiently high that monetary policy ceases to be an effective tool for controlling inflation. In fact, persistently high interest rates in an environment of perpetually large deficits actually risk exacerbating inflation.”
“Government spending has taken the lead, driving liquidity, economic activity, and inflation in today’s economy. The main takeaway is that private borrowing is a less critical metric in the current cycle because it’s been crowded out by government borrowing and spending.”
“Since inflation is not primarily driven by private-sector lending in the current environment, making borrowing more expensive will not significantly cool the economy.”
“Today, structural deficits are driven by systemic factors: an aging population requiring higher entitlement spending, rising healthcare costs, and compounding interest payments on decades of accumulated debt. Said differently, these deficits are no longer a matter of choice but a byproduct of systemic obligations. This is what we mean when we call them “structural.””
To what extent are "entitlements" really legally binding entitlements, in the US?
In Spain, to give you my direct experience, there is no such thing. Public retirement pensions do NOT constitute a binding entitlement that is immutable and known.
The government (Parliament) can (an constantly does) change them, and can at any time even pass a law cutting them by any arbitrary amount, or even completely eliminating them, regardless of how many years and how much you paid.
So there isn't really an "entitlement" to anything. The government "gives" and the government "takes" as it pleases (and is politically convenient).
If a political party wants to win the next election, it can’t be seen to threaten such entitlements.
When the political system is broken, it’s always easier to kick the can further down the road.
That's not what I'm asking though.
As I explained, the government in Spain is not legally bound by any type of concept of "entitlement" as far as public pensions are concerned (and that's the main single spending chapter and our Social Security system has a gigantic budgetary deficit already, and it only increases every year). So, if there was a Milei in Spain, with enough seats in Parliament, they could cut the pensions in half and call it a day. Nobody would be able to challenge it in court because there is no "entitlement".
Is the situation in the US the same, or are people *actually* entitled to a specific amount, and the government is unable to legally do anything about it?
“The government’s recent reliance on short-term instruments like T-bills exposes it to significant refinancing risks. In the next year alone, $6.7 trillion in debt will need to be refinanced at higher rates, amplifying the fiscal strain.”
“On the surface, Turkey’s debt-to-GDP metrics appeared reasonable, but these figures masked a deeper issue: the fiscal deficit was driving currency debasement, which in turn inflated nominal GDP. This dynamic created the illusion of fiscal stability, even as nominal debt and inflation spiraled out of control.”
“As nominal GDP and inflation run hot, debt-to-GDP ratios may appear stable or even decline, masking the extent of nominal debt accumulation and inflation in various forms.”
“purchasing Treasuries through QE programs expands the money supply, injecting liquidity into the financial system. This ultimately results in asset price inflation and the erosion of purchasing power in the dollar.”
This was a really in-depth look. Thank you guys for putting it together.
“The U.S. economy… is deeply tied to the stock market, creating a strong incentive for policymakers to support equities rather than risk a drop in [tax] revenues from falling asset prices.”
“In this environment, holding hard, scarce assets such as real estate, equities, gold, and bitcoin offers a pragmatic way to preserve purchasing power and navigate the pressures of fiscal dominance. These assets provide a hedge against the gradual yet persistent erosion of purchasing power in an era where fiscal policy rules the economic landscape.”
Have you looked into posting natively here on nostr as well? Would love to read your writings in dark mode.
this a big reality...
"Department of Government Efficiency [DOGE] is unlikely to make meaningful cuts to federal spending as only 14% of the budget is non-defense discretionary, while 87% of nominal spending growth over the next decade is projected to come from mandatory programs and interest expense."
this a big reality...
"Department of Government Efficiency [DOGE] is unlikely to make meaningful cuts to federal spending as only 14% of the budget is non-defense discretionary, while 87% of nominal spending growth over the next decade is projected to come from mandatory programs and interest expense."
Great read, as always.
nostr:note1mq3jptr6ucf7rp7xydr2jeccqh4jrq0nluwnkdpa2a393rfs06xszjstrl
Great read. Conviction builder.
I appreciate your balanced, thoughtful analysis, nostr:npub1a2cww4kn9wqte4ry70vyfwqyqvpswksna27rtxd8vty6c74era8sdcw83a.
In particular, your insight on the inflows from USDT/Tether is enlightening. It seems the US dollar is only strengthening.
Do you share nostr:npub15dqlghlewk84wz3pkqqvzl2w2w36f97g89ljds8x6c094nlu02vqjllm5m ‘s perspective that USDT will become digital money instead of bitcoin?
Really great report nostr:npub1a2cww4kn9wqte4ry70vyfwqyqvpswksna27rtxd8vty6c74era8sdcw83a
Impressive as always. Thank you. Great report, helped a lot in clarity to today’s world.
Will have a read for sure
Phenomenal analysis, thank you