The U.S. Fiscal Crisis Has No Exit Without Devaluation

Luke Gromen returns to What Bitcoin Did to explain why the federal government's fiscal position is effectively unfixable by anything other than a major currency devaluation—and why the AI boom that has been masking the problem is itself a bubble that could trigger the crisis when it bursts.

Fiscal Dominance and the Fed's Trap

The U.S. is in what Gromen calls "fiscal dominance": the government's true interest expense plus entitlement spending now exceeds 100% of tax receipts. This means the Fed has lost its ability to set interest rates independently—any attempt to raise rates to fight inflation just increases the government's borrowing costs, making the deficit worse.

"The only way the Fed can get the U.S. out of fiscal dominance is if they cut rates to zero and they partner with Treasury, so Treasury issues all the bond issuance at the front end at zero rates," Gromen says. That is "kissing cousin of printing money to finance a deficit."

He points to 2020–2022 as the proof: during COVID, the Fed bought $600 billion per month in Treasury bonds while the government sent stimulus checks. True interest expense fell from 120% of receipts to 85%. The dollar dropped. Inflation took off. It worked—but only temporarily.