Inflation, Fiscal Dominance, and Bitcoin’s Ascent

• My 'briefing notes' summarize the content of podcast episodes; they do not reflect my own views.
• They contain (1) a summary of podcast content, (2) potential information gaps, and (3) some speculative views on wider Bitcoin implications.
• Pay attention to broadcast dates (I often summarize older episodes)
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Summary

The September 22, 2025 episode of What Bitcoin Did features Lawrence Lepard outlining how fiscal dominance and prospective yield curve control entrench inflationary pressures. Lepard argues that policy credibility is eroding as authorities blur monetary and fiscal lines and selectively suspend rules, exemplified by the Silicon Valley Bank rescue. He contends gold tends to move first while Bitcoin moves fastest, implying a shift toward scarce, non-dilutive assets as fiat trust decays.

Take-Home Messages

1. Fiscal Dominance: Treasury–Fed coordination channels policy toward inflation to manage debt overhangs.
2. Policy Credibility: Selective rule-bending (e.g., SVB rescue) undermines trust and hardens moral hazard.
3. Yield Curve Control: Suppressing long rates requires monetary expansion that historically raised inflation.
4. Inflation Psychology: Wage-bargaining and expectations can lock in multi-year price pressures.
5. Asset Signaling: Gold often leads the cycle while Bitcoin amplifies the move as adoption broadens.

Overview

Larry Lepard characterizes the latest 25-basis-point cut as “kabuki,” arguing the Federal Reserve is trapped between persistent inflation and softening labor data. He says talk of tools masks structural limits, with policy drifting toward coordination that subordinates price stability to debt service. Yield curve control is presented as the likely mechanism, echoing post-war precedents where capped rates coincided with high inflation.

He asserts inflation is also psychological: once households and unions internalize rising prices, wage demands propagate new rounds of increases. The 1970s serve as his reference for feedback loops that policy cannot easily break without severe tightening. He warns that today’s awareness could restart similar dynamics.

Lepard cites the Silicon Valley Bank rescue as evidence that legal constraints like Dodd-Frank are suspended under pressure, eroding institutional credibility. He frames such exceptions as symptoms of fiscal dominance, not isolated anomalies. According to him, this pattern accelerates the search for alternatives.

On technology, he grants AI and robotics can lift productivity but argues a credit-dependent fiat system requires inflation and ongoing balance-sheet expansion. He expects gold to continue signaling regime shifts first, with Bitcoin expressing the move at greater magnitude. In his end state, prices denominate in satoshis as fiat credibility fades.

Stakeholder Perspectives

1. Central Banks: Preserve credibility while financing governments without igniting uncontrolled inflation.
2. Finance Ministry/Treasury: Maintain market access and service debt through rate suppression and bank intermediation.
3. Institutional Investors: Rebalance toward scarce assets and stress-test portfolios for policy and liquidity shocks.
4. Labor and Employers: Navigate wage-price dynamics, indexation pressures, and contract design under higher inflation.
5. Retail Savers: Hedge savings erosion via gold and Bitcoin while managing volatility and custody risks.

Implications and Future Outlook

If yield curve control emerges, monetary aggregates likely re-accelerate, validating the “gold first, Bitcoin fastest” playbook. Policy trade-offs will shift from if to how much inflation is tolerated to stabilize debt service. Market structure will reward balance sheets pre-positioned in scarce collateral with robust custody.

Credibility shocks from selective rule suspension can tighten private credit even as policy eases, creating stagflation risk. Contract indexation may spread, raising inflation persistence and complicating disinflation without deep recessions. Governance responses will determine whether trust stabilizes or accelerates exit to neutral, non-dilutive assets.

For Bitcoin, incremental adoption hinges on perceived policy entrenchment and visible signals from gold and monetary aggregates. A crisis-driven “big print” would compress timelines and steepen flows into hard assets. Absent crisis, the path remains stair-stepped: central bank gold accumulation, broader institutional hedging, then deeper Bitcoin reserve consideration.

Some Key Information Gaps

1. How sustainable is yield curve control in preventing bond market collapse? Clarifying duration, balance-sheet costs, and exit mechanics will guide both policy design and asset allocation.
2. How do psychological perceptions of inflation amplify economic cycles? Understanding expectation formation and wage-setting informs contract design and anti-inflation policy.
3. What are the long-term implications of violating Dodd-Frank through bailouts? Mapping moral hazard and trust erosion is essential for credible crisis frameworks.
4. To what extent can AI-driven productivity gains offset structural debt obligations? Separating cyclical from secular effects sets realistic constraints on disinflation via growth.
5. What scenarios could trigger a currency failure in the United States? Scenario analysis can prioritize resilience investments and contingency planning for payments, savings, and credit.

Broader Implications for Bitcoin

Monetary Architecture Under Fiscal Dominance

A policy regime that normalizes rate caps and balance-sheet intermediation pushes savings toward assets outside political control. Reserve composition could tilt toward gold first and then, selectively, Bitcoin, as institutions hedge policy risk. This shift would pressure standards for custody, auditability, and market microstructure across jurisdictions.

Contract Design and Indexation

Persistent inflation revives multi-year indexation in wages, leases, and procurement, entrenching price pressures. Bitcoin-denominated clauses may emerge in niche, cross-border agreements where counterparties seek neutral settlement and long-dated purchasing-power anchors. Legal and accounting frameworks will need updates to accommodate denomination, taxation, and collateralization in non-dilutive units. [note that this plays a major role in Bitcoin's long-run adoption as a unit of account - see my Bitcoin Worlds preprint]

Bank Regulation and Crisis Playbooks

Selective suspension of rules in crises invites calls for automatic, rule-based stabilization tools. Over time, parallel rails—settlement in Bitcoin alongside fiat—could feature in contingency plans to maintain payments under stress. This requires prudential guidance on liquidity, capital charges, and custody risk for non-sovereign monetary assets.

Market Signaling and Macro Surveillance

If gold leads and Bitcoin accelerates, policymakers will track these prices and global M2 as de facto referendum metrics on credibility. Surveillance programs may integrate hard-asset signals with labor and credit data to anticipate regime breaks. The feedback loop can shorten policy windows, forcing earlier, more transparent communication.

Household Finance and Retirement Security

Erosion of fiat purchasing power pushes households to rebalance toward scarce assets despite volatility. Education, safe-harbor custody options, and retirement plan rules that address non-dilutive assets become salient. Over the medium term, diversified “inflation-barbell” portfolios could normalize across pensions and defined-contribution plans.