We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth

In this episode of Forward Guidance, Felix interviews David Beckworth, a Senior Research Fellow at the Mercatus Center, about fiscal dominance and its implications for monetary policy. Beckworth defines fiscal dominance as a situation where the Federal Reserve prioritizes government solvency over price stability, potentially leading to financial repression through measures like yield curve control or implicit taxes on banks. The discussion covers historical examples of fiscal dominance, such as during World War II, and suggests the U.S. may currently be in stage two of a fiscal dominance spectrum, characterized by pressures on financial firms' balance sheets and rhetoric tying Fed policy to debt costs. They explore the role of stablecoins, potential changes to the Fed's monetary policy framework, including a shift back to flexible inflation targeting, and alternative approaches like nominal GDP level targeting. Beckworth also proposes an asset swap between the Treasury and the Fed to better manage the balance sheet and minimize fiscal costs.