How the US Government Will Force Banks to Fund the Deficit | Charles Calomiris

Hidden Forces

Demetri Kofinas

Government, Business

4.8 • 1.6K Ratings

🗓️ 14 August 2023

⏱️ 59 minutes

🔗️ Recording | iTunes | RSS

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Summary

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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Episode Recorded on 08/09/2023

Transcript

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0:00.0	What's up everybody? My name is Demetra Gafinas and you're listening to Hidden Forces,
0:05.8	a podcast that inspires investors, entrepreneurs and everyday citizens to challenge consensus narratives
0:13.4	and to learn how to think critically about the systems of power shaping our world.
0:18.4	My guest in this episode of Hidden Forces is the University of Texas at Austin's Director
0:23.2	of the Center for Politics, Economics and History. And until recently, the Henry Kaufman
0:28.7	Professor of Financial Institutions at Columbia Business School, Dr. Charles Kalamiris.
0:34.0	What prompted this conversation was a paper written by Professor Kalamiris about a condition
0:38.8	known as fiscal dominance, which he examines the possibility that the United States government
0:43.6	may eventually choose to enact new and more onerous forms of financial repression,
0:48.2	including the commandeering of the U.S. banking system in order to fund itself.
0:52.8	In the first hour, Charles and I discussed the history of U.S. bank policy and the unique
0:57.4	characteristics of the American political economy that inform how the nation responds to political
1:02.8	crises and the populist temptation to use the banking system to resolve them. The second hour
1:08.8	is devoted to a discussion about when and how such measures will be taken to resolve an impending
1:13.9	fiscal debt crisis that Professor Kalamiris believes is inevitable. We discussed what some of the
1:19.0	signposts of such an impending crisis could be that would warn the public and investors what an
1:24.4	economy operating under the conditions of fiscal dominance would look like, including trade-offs
1:29.2	within government spending and private investment, how such a period of fiscal dominance could end
1:34.4	either through a prolonged period of double-digit inflation or a full-blown debt crisis,
1:39.3	and what role FinTech, crypto, and decentralized finance will play in such an economy,
1:44.5	given the Fed's need to fund itself without losing complete control over inflation.
1:50.0	This is another phenomenal conversation on a subject that we have explored at length
	...

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