Instead of a transparent default, the U.S. government's strategy is to devalue its debt by keeping interest rates below inflation. This policy, known as 'financial repression,' erodes the real value of the dollar, effectively transferring wealth from savers and bondholders to the government to pay down its massive debt.

The Federal Reserve is paralyzed. Cutting interest rates to support the bond market would fuel accelerating inflation. Raising rates to fight inflation would make interest payments on the national debt unsustainable for the Treasury, creating a no-win scenario.

When national debt grows too large, an economy enters "fiscal dominance." The central bank loses its ability to manage the economy, as raising rates causes hyperinflation to cover debt payments while lowering them creates massive asset bubbles, leaving no good options.

Due to massive government debt, the Fed's tools work paradoxically. Raising rates increases the deficit via higher interest payments, which is stimulative. Cutting rates is also inherently stimulative. The Fed is no longer controlling inflation but merely choosing the path through which it occurs.

Even if US inflation remains stubbornly high, the US dollar's potential to appreciate is capped by the Federal Reserve's asymmetric reaction function. The Fed is operating under a risk management framework where it is more inclined to ease on economic weakness than to react hawkishly to firm inflation, limiting terminal rate repricing.

In a regime of fiscal dominance, where government spending dictates policy, the currency, not bond yields, becomes the primary release valve for economic pressure. While equities and yields may appear stable, the true cost of stimulus will be reflected in a devaluing dollar, a risk often overlooked by bond vigilantes.

Under "fiscal dominance," the U.S. government's massive debt dictates Federal Reserve policy. The Fed must keep rates low enough for the government to afford interest payments, even if it fuels inflation. Monetary policy is no longer about managing the economy but about preventing a debt-driven collapse, making the Fed reactive, not proactive.

The U.S. government's debt is so large that the Federal Reserve is trapped. Raising interest rates would trigger a government default, while cutting them would further inflate the 'everything bubble.' Either path leads to a systemic crisis, a situation economists call 'fiscal dominance.'

High debt and deficits limit policymakers' options. Central banks may face pressure to absorb government debt issuance, which conflicts with the goal of raising interest rates to curb inflation, leading to a new era of "fiscal dominance."