The Prospect of Fiscal Dominance in the United States: A New Quantity Theory Perspective

15 Pages Posted: 11 Feb 2022

See all articles by David Beckworth

David Beckworth

Mercatus Center at George Mason University

Date Written: October 23, 2021

Abstract

The U.S. national debt is now near 100 percent of GDP and is expected to double that by 2050, according to the Congressional Budget Office. This change in U.S. public finance has some observers worried that a regime of fiscal dominance may soon emerge, making monetary policy subservient to fiscal policy. This paper provides an alternative interpretation of these facts: the elevated debt-to-GDP alongside well-anchored inflation expectations reflects an elevated real demand for government securities. This interpretation can be shown using a New Quantity Theory that falls out of the recent work on the Fiscal Theory of the Price Level with a bubble.

Keywords: Fiscal Dominance, Fiscal Theory of the Price Level with a Bubble, Safe Assets, Dollar Dominance

JEL Classification: E6, H6

Suggested Citation

Beckworth, David, The Prospect of Fiscal Dominance in the United States: A New Quantity Theory Perspective (October 23, 2021). Available at SSRN: https://ssrn.com/abstract=3969473 or http://dx.doi.org/10.2139/ssrn.3969473

David Beckworth (Contact Author)

Mercatus Center at George Mason University ( email )

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