There is a frightening reflexive scenario in which raising interest rates to fight inflation becomes inflationary rather than disinflationary, because higher rates so worsen government debt servicing that people expect the government to force the central bank to monetize the debt—as captured in Sargent and Wallace's 'unpleasant monetarist arithmetic' and Cochrane's fiscal theory of the price level: fiscal policy ultimately dominates monetary policy.

causalpending

Speaker

William White

Evidence Quote

how government debt, if it's big enough and short-term enough, will eventually blow you out of the water or blow the monetary authority out of the water. And the worry in a way is that that's where we're getting to.

Source

Former Chief Economist (BIS) Explains Monetary EndgameReinvent Money
Created: 6/18/2026, 1:58:55 PM

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