This was an exceptional breakdown of a topic that's often misunderstood or downplayed in policy circles. The distinction between monetary and fiscal dominance is more than academic—it has real implications for the sustainability of U.S. macroeconomic policy.
Exceptionally clear explanation. The way you unpacked fiscal and monetary dominance through the consolidated budget identity made a complex subject remarkably legible.
It did leave me wondering, though: what if we’re already in that regime ? Not formally, but through reflexivity. The bond market prices in fiscal stress, the Fed adapts to those reactions, and that loop begins to narrow what policy can realistically do. Not by law, but by consequence.
And now, with the U.S. entering the Middle East conflict, the backdrop shifts again. Geopolitical risk doesn’t just move yields, it reframes what’s financially and politically sustainable. Perhaps the shift into fiscal dominance won’t come with a break, but with the slow erosion of options, already well underway ?
Followed your X post back to this article--really well done. Terrific MM episode as well. My mind still does not wrap well around the scenario of the fiscal authority refusing to change course, and the monetary authority (a la Waller) refusing to accommodate. Is there a stalemate scenario?
Brilliant piece, well done, David!
This was an exceptional breakdown of a topic that's often misunderstood or downplayed in policy circles. The distinction between monetary and fiscal dominance is more than academic—it has real implications for the sustainability of U.S. macroeconomic policy.
Is non interest bearing money creation just the fed creating money from nothing?
Exceptionally clear explanation. The way you unpacked fiscal and monetary dominance through the consolidated budget identity made a complex subject remarkably legible.
It did leave me wondering, though: what if we’re already in that regime ? Not formally, but through reflexivity. The bond market prices in fiscal stress, the Fed adapts to those reactions, and that loop begins to narrow what policy can realistically do. Not by law, but by consequence.
And now, with the U.S. entering the Middle East conflict, the backdrop shifts again. Geopolitical risk doesn’t just move yields, it reframes what’s financially and politically sustainable. Perhaps the shift into fiscal dominance won’t come with a break, but with the slow erosion of options, already well underway ?
Followed your X post back to this article--really well done. Terrific MM episode as well. My mind still does not wrap well around the scenario of the fiscal authority refusing to change course, and the monetary authority (a la Waller) refusing to accommodate. Is there a stalemate scenario?
Did we not have fiscal Dominance heading into the Trump Admin......
Nice work , I had not seen your sub stack before