Economist Scott Sumner warns that talk of imminent "fiscal dominance" — where central banks are forced to monetize government debt, driving high inflation — is overblown, though he says the concept merits careful definition. Sumner notes three U.S. monetary regimes since 1879: gold standard (1879–1933), quasi‑gold (1934–1968) and fiat (March 1968–present). He argues most quantitative easing merely swapped interest‑bearing reserves for interest‑bearing government bonds and thus did not directly raise governments’ financing costs. "In reality, most QE involved an exchange of interest‑bearing reserves for interest‑bearing government debt, which has no primary effect on the government's financing cost," he writes.

Sumner also disputes the narrative that fiscal pressures drove the high inflation of 1968–1981, pointing out that public debt was low and even falling as a share of GDP then; he attributes that episode to a flawed Phillips‑curve view among policymakers. He defines true fiscal dominance as a regime in which monetary policy generates high inflation primarily to serve fiscal needs rather than to support the real economy or employment, and considers such a scenario unlikely in the near term. Source: The Pursuit of Happiness. #inflation #Fed #monetarypolicy #fiscalpolicy #FiatNews