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.

Deficit spending acts as a hidden tax via inflation. This tax disproportionately harms those without assets while benefiting the small percentage of the population owning assets like stocks and real estate. Therefore, supporting deficit spending is an active choice to make the rich richer and the poor poorer.

A condition called "fiscal dominance," where massive government debt exists, prevents the central bank from raising interest rates to cool speculation. This forces a flood of cheap money into the market, which seeks high returns in narrative-driven assets like AI because safer options can't keep pace with inflation.

To fund deficits, the government prints money, causing inflation that devalues cash and wages. This acts as a hidden tax on the poor and middle class. Meanwhile, the wealthy, who own assets like stocks and real estate that appreciate with inflation, are protected and see their wealth grow, widening the economic divide.

'Fiscal dominance' occurs when government spending, not central bank policy, dictates the economy. In this state, the Federal Reserve's actions, like interest rate cuts, become largely ineffective for long-term stability. They can create short-term sentiment shifts but cannot overcome the overwhelming force of massive government deficit spending.

When a government's deficit spending forces it to borrow new money simply to cover the interest on existing debt, it enters a self-perpetuating "debt death spiral." This weakens the nation's financial position until it either defaults or is forced to make brutal, unpopular cuts, risking internal turmoil.

The money printing that saved the economy in 2008 and 2020 is no longer as effective. Each crisis requires a larger 'dose' of stimulus for a smaller effect, creating an addiction to artificial liquidity that makes the entire financial system progressively more fragile.

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.'

The U.S. economy's only viable solution to its long-term debt and inflation is a "beautiful deleveraging"—a painful but controlled economic downturn. The alternative is delaying and being pushed off the cliff by market forces, resulting in a much more severe and uncontrolled crash.