Fiscal dominance and debt sustainability risks

Today, we are joined by David Beckworth, Senior Research Fellow at the Mercatus Center and host of Macro Musings, for a deep dive into the biggest macro questions shaping markets right now. David explains why central banks struggle to respond to supply shocks, why inflation expectations are more fragile than policymakers admit, and how frameworks like nominal GDP targeting could offer a more robust path forward. We explore the collision between geopolitical shocks and AI-driven productivity, the hidden consequences of quantitative easing, and the growing tension between monetary policy and fiscal sustainability. From stablecoins and the future of the dollar to the Fed’s balance sheet and financial system plumbing, this episode unpacks the forces quietly reshaping the global economy, and why policymakers may be less in control than we think.

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Episode TimeStamps:

00:00 - Stablecoins, financial stability, and uncertain impact

01:00 - David Beckworth’s path into macroeconomics

05:43 - How central banks should respond to supply shocks

08:56 - Why policymakers struggle to separate supply vs demand

11:58 - Inflation expectations and post-COVID sensitivity

14:46 - Are central banks over-reliant on flawed inflation models?

18:49 - AI as a positive supply shock: hype vs reality

22:00 - Productivity booms, deflation, and policy challenges

25:11 - Kevin Warsh, AI optimism, and the Fed’s future direction

29:33 - QE, QT, and the long-term impact on financial markets

33:28 - The “ratchet effect” and why the Fed can’t shrink easily

37:59 - Liquidity: abundant or an illusion?

41:38 - Are markets addicted to central bank liquidity?

44:21 - Fiscal dominance and the long-term risk to central banks

53:54 - Stablecoins, dollar dominance, and global demand

59:10 - Private credit and the evolving financial system

01:00:49 - Books, learning, and building a career in macro

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