Guest Post by Peter Reagan

The biggest threat to your wealth today isn’t inflation or recession – it’s a deliberate policy shift meant to stabilize the national debt. This may be the only way out of our debt trap. But how much of our prosperity will it cost us?

There’s a phrase being whispered in the back rooms of central banks across the ocean in the EU and right here at the Federal Reserve. “Fiscal dominance.”

Like all of the most alarming central-bank speak, this phrase is both unfamiliar and bland. Downright boring, even.

I’ve been paying close attention to monetary policy for over 20 years, and I’ve never encountered this phrase before. So of course I studied it…

 And let me tell you – I’ve learned that fiscal dominance may represent the most dangerous economic shift we’ve seen in the U.S. since the end of the gold standard. (Especially if you’re in or nearing retirement.)

Those of us simply trying to preserve what we’ve worked a lifetime to earn and save have a lot at stake as well.

Let’s unpack what fiscal dominance is. Then we’ll discuss whether it’s likely to become the dominant force in the U.S. economy…

What is fiscal dominance?

I first heard the phrase from this interview with Lyn Al

(Watch to about 3:09.)

Now, here’s what she’s talking about.

At the highest level, there are two kinds of economic policies: Fiscal and monetary.

“Fiscal” means how money is collected and spent. Congress and the President are in charge of fiscal policies.

“Monetary” means how the value of money itself is managed. Money supply, interest rates, bank reserves and so on. That’s the job of the Federal Reserve.

Now, obviously, these two forces can be at odds with one another. And right now, they certainly are:

The President says interest rates are too high, which is “costing the U.S. 360 Billion Dollars a Point, PER YEAR, in refinancing costs.” And if the Fed lowered interest rates significantly, the national debt would grow significantly more slowly.

(My back-of-the-envelope math doesn’t quite match up; I estimate a $500 billion per year savings in total from a 3% drop in the Fed’s primary interest rate, from 4.3% to 1.3%. Still a lot of money!)

Fed Chair Jerome Powell thinks differently – headline inflation still fallen to the Fed’s 2% target. The FOMC says tariffs could still drive prices up, so they’re extremely hesitant to lower rates. Furthermore, unemployment is historically low, so the “full employment” part of the Fed’s dual mandate seems well in hand at the moment.

Now, the President cannot legally order the Fed to raise or lower interest rates. The Federal Reserve was designed as an independent institution, like all reputable central banks.

It’s a separation of powers thing. Because the people who decide how money is spent should not have access to the printing presses. I’m sure you know how that story ends.

(Now, I’m not picking sides here. Though a lot of people accuse Powell of picking favorites because the Fed lowered rates three times in late 2024, just before the election. They’re conveniently forgetting that the Fed also lowered rates three times in 2019, during the previous Trump presidency.)

Regardless, the frustration over the situation has boiled over multiple times. On social media, in interviews and in the White House rumor mill. The four-year, $2.5 billion renovation of the Fed’s historic headquarters may become the “cause” necessary for the President to formally terminate Powell’s term as Fed Chair.

But that’s not actually what the White House wants! They want lower rates, period – and if Powell won’t deliver, then by golly they’ll find someone who will.

“If the Fed were to lower interest rates this month to 1%, White House officials would stop talking about beehives and fancy elevators,” Sarah Binder, a political scientist at George Washington University who has studied Fed governance, tells Axios.

Fiscal dominance is when the people who control spending (Congress and the President) overrule the people who control inflation (Powell and the Fed).

In a normal world, the Fed raises interest rates to cool inflation and preserve our purchasing power. But when the government is drowning in debt – as we are now – inflation-fighting interest rates make the nation’s debt more expensive.

No doubt, lower interest rates would be better for the Treasury Department. Treasury Secretary Scott Bessent is the one who has to pay the interest on the national debt. Lower interest rates would save him (and therefore the American people) a lot of money.

So if the benefit is so obvious, what’s the cost of lower interest rates? What’s the price tag of fiscal dominance?

A case study of fiscal dominance in action

If you want a glimpse into what fiscal dominance looks like in practice – not theory – you don’t have to look to the future. Just look at Japan today.

The story starts in the late 1980s, during what was then the largest asset bubble in history. Fueled by easy money, Japanese asset prices (especially real estate) skyrocketed. At its peak, the less-than-a-square-mile of land beneath the Imperial Palace in Tokyo was valued more than all of California!

It couldn’t last. In the early 1990s, Japan’s economy collapsed under the weight of its own speculative excesses. Property values plunged 70-80%. Loans defaulted, banks teetered and trillions in household and corporate wealth vanished.

In response, the independent central Bank of Japan (BoJ) turned on the money-printers. Interest rates went to zero, which was unprecedented at the time. The Japanese government was desperate to revitalize the economy – with massive crisis-level stimulus spending. Stimulus after stimulus followed…

But something strange happened – or, I should say, didn’t happen. The economy stagnated instead of recovering.

Interest rates were already zero, so the BoJ went further – they started buying government debt outright. In effect, they began monetizing debt. That signaled the government – Spend as much as you want, we’ll print the money you need.

A “lost decade” began. The combination of deficit spending and money-printing, which started as a temporary emergency measure, became permanent. The BoJ lowered interest rates below zero – again, unprecedented. Zero interest rates are bad enough, but negative interest rates actually penalize citizens for saving their money.

It still didn’t work. The lost decade went on and on – eventually, to become three consecutive lost decades.

Government debt ballooned to unsustainable levels. By 2020, it had crossed 250% of GDP – the highest in the developed world. In the open market, that kind of debt would require very high interest rates to attract buyers…

But the Bank of Japan couldn’t let that happen. Rising rates would’ve meant exploding refinancing costs. So the BoJ stepped in once again, artificially repressing interest rates on government debt – even as inflation started to rise.

Let that sink in: Even with 40-year high inflation, the BoJ refused to raise rates. Not because citizens weren’t suffering – but because the government couldn’t afford it.

The worst part of this whole story, though? Japan still hasn’t fully emerged from its 30-year stagnation. Real estate values are still 30-50% below their 1989 peak. Purchasing power has declined by about 50%. The economy that was once expected to surpass the U.S. instead became a cautionary tale.

A warning of the true cost of fiscal dominance.

Who’s more important – the state? Or the people? 

It’s easy to see fiscal dominance is an attempt to salvage the government’s fiscal situation. At the expense of its citizens. That’s a tough choice to make.

Lowering interest rates while inflation is still above 2% and the economy is already at full employment will help the government save money on refinancing costs. But that savings doesn’t just appear out of nowhere. It comes from you, from me, from everyone who owns dollars. As I’ve said many times, inflation is a hidden tax on savers.

Raising taxes is politically unacceptable. Right? No one will ever win a vote for promising to higher taxes on their own constituents. Inflation, though, well that’s more complicated. When inflation is a problem, who gets blamed? Houthi terrorists who shut down the Bab al-Mandeb Strait in the Red Sea – just one example of the notorious “supply chain snarls” we’ve seen since the pandemic panic.

Or “greedy corporations.” Or Democrats. Or China, or tariffs it doesn’t really matter. The point is, there’s always a scapegoat.

This purchasing power destruction is not a glitch. It’s the plan.

Fiscal dominance ensures that government borrowing stay cheap. Even if it means your savings doesn’t go as far as you hoped.

Draining our savings to manage the debt

The really confusing thing about the fiscal dominance situation? There’s a strong case for it!

When you have a President working hand-in-hand with Congress, who has a clear mandate from the voters to rejuvenate the U.S. economy… Well, that’s not cheap. Somebody has to pay for it.

As a patriot, I’m torn. On the one hand, I really do love this country. I want to see America made great again.

On the other hand, I’ve worked hard and sacrificed to build up my savings. I certainly don’t want to see my savings, earned through my own blood, sweat and tears, silently drained away. Not for anything.

That means I need some protection against purchasing power destruction. We can’t opt out of the dollar itself. But we can choose to diversify our savings outside the dollar-based system.

Gold doesn’t pay interest – but it also can’t be debased by central bankers or government debt crises.

Consider this: During Japan’s 30-year stagnation, while the average saver watched their purchasing power evaporate, gold owners made out just fine. Owning gold didn’t just preserve purchasing power, but increased it. The price of gold rose over 170% in Japan, while real estate prices are STILL a long way from recovering.

This tells us two things:

1. Physical assets are a good hedge against currency destruction
2. Not all physical assets are created equally

During the worst case of fiscal dominance in recent history, the lesson is clear. Gold just holds value – no matter who’s in charge, or what the latest policy experiment looks like.

Fiscal dominance won’t make the headlines

Should fiscal dominance become official policy, trust me, there will not be a press conference. Karoline Leavitt will not stand at a podium and explain that the good of our nation requires financial sacrifice from you and me. Even if it’s true, it will never be spoken aloud.

By the time fiscal dominance is in motion it’ll be too late.

What really has me concerned is that the warning signs are already here. Consider:

• Financing costs on new government debt have risen even though the Fed lowered interest rates
• The debt ceiling was raised $5 trillion
• For the 26th year in a row, the federal government will run a budget deficit
• The current debt https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny of $36.6 trillion will grow by $1.2 trillion this year from financing costs alone
• The President and his cabinet are openly considering firing Jerome Powell explicitly to save money on the national debt

My greatest fear is that fiscal dominance might turn out to be THE ONLY WAY OUT of the debt trap our nation finds itself in. That deliberately devaluing the dollar may truly be the only way out of this mess.

That’s not just me talking, either. Consider the situation from a global perspective:

• The dollar had its worst start to a year since 1973, dropping over 10%
• World central bank dollar holdings hit a 20-year low in 2022 (and have slid even further since)
• Foreign ownership of U.S. government debt has been on the decline for the last 15 years
• Earlier this year, the U.S. government lost its final AAA credit rating
• Meanwhile, central banks worldwide have set gold-buying records for three consecutive years (and 2025 is shaping up to be yet another)
• Investor demand for gold set a record in the fourth quarter of 2024 – and another in the first quarter of 2025

Now, we can call this dedollarization. We can call it a vote against the U.S. But from a different perspective, it looks like a prudent hedge against further decline in the dollar…

If my concerns about fiscal dominance are correct, then world central bankers probably made the connection well before I did.

Maybe they know something we don’t. Or maybe they know exactly what’s coming.

As central banks continue unprecedented money creation, protecting your purchasing power becomes critical for retirement security. Physical gold IRAs offer a tax-advantaged solution, allowing you to hold tangible precious metals with intrinsic value independent of currency fluctuations. To learn more about how physical gold could help protect your retirement portfolio, click here to get your FREE info kit on Gold IRAs from Birch Gold Group.