In Episode 323 of Hidden Forces, Demetri Kofinas speaks with the former Chief Economist at the Office of the Comptroller of the Currency and the Director of the Center for Politics, Economics, and History at the University of Texas at Austin, Charles Calomiris about his recently published paper “Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements.”

In the paper, Dr. Calomiris considers the possibility that the United States government will enact new and more onerous forms of financial repression, including commandeering the US banking system to fund unsustainably high debt and deficit payments that would otherwise lead to a sovereign debt crisis.

In the first hour, Calomiris and Kofinas discuss the history of US bank policy and the unique characteristics of the American political economy that inform how the nation responds to political crises and the populist temptation to resolve them through the US banking system.

The second hour is devoted to a discussion about when and how such measures will be taken to resolve an impending fiscal debt crisis that professor Calomiris believes is inevitable. They discuss what the signposts for such an impending crisis could be, the tradeoffs that an economy operating under the conditions of fiscal dominance would have to make, how such a period of fiscal dominance could end (i.e., either through a prolonged period of double-digit inflation or a full-blown debt crisis), and what role fintech, crypto, and other forms of decentralized finance will play in such an economy given the government’s need to fund itself without losing complete control over inflation.

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Producer & Host: Demetri Kofinas

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Episode Recorded on 08/09/2023