Gold, Dollars & Financial Repression

September 3, 2026 | For the past century going back to before the first World War, the credit standing of governments has stood at the apex of finance, with private obligors in a secondary position. But now, with the major nations of the G-20 slouching toward some sort of debt restructuring or even default, it may be time to consider a world in which gold, silver and other physical assets will be far more valuable than any national fiat currency.

When the price of gold or other physical assets rise what is really happening is that the value of fiat currencies is falling. The rout ongoing in the bonds of the various industrial nations suggests that the dollar and all of its subsidiary currencies are in big trouble. Yet none of these democratically elected governments are willing to take steps to arrest the decline in their credit standing, namely raising taxes and reducing public spending.

Treasury Secretary Scott Bessent buys long-dated Treasury debt and funds this operation with T-bills, yet he is not so much pushing down on LT yields as he is struggling against rising prices for gold and real commodities. The LT increase in the price of gold is a stark refutation of the fiscal position of the United States going back to the New Deal. Rising gold prices suggest that investors may soon be experiencing another prolonged dose of financial repression. 

The chart below of the Financial Repression Index shows the portion of bank interest earnings that goes to equity rather than debt. In 2020 when the Fed utilized quantitative easing (QE) to force interest rates down, over 90% of the total interest income of banks went to equity instead of depositors and other creditors. And of course, the major beneficiary of QE was the US Treasury. In 1984, most bank interest earnings went to depositors and bond holders.

Source: FDIC/WGA LLC

When the Treasury under Secretary Bessent buys back long-dated debt and issues T-bills in a futile effort to force down LT yields, we are reminded of the equally inane policy of Treasury Secretary Janet Yellen and “Operation Twist.” Bill Nelson at Bank Policy Institute wrote last week:

“The Treasury is currently buying back long-term debt and funding it by issuing bills in an attempt to lower long-term rates. Viewed from a consolidated balance sheet perspective, that’s essentially what the Fed did with QE.  If short-term rates rise more rapidly than currently expected, we will look back on the Treasury’s decision to engage in the buybacks and calculate how much it cost taxpayers.”

Of course, the lesson we are all learning today is that the short-term machinations of the Fed or Treasury in the debt markets don’t really matter when it comes to yields on government debt. Smart investors who do the math on future deficits at higher interest rates realize that the US must eventually default on and restructure debt, which is why investors are running away from Treasuries and other G-20 public securities.

American Weimar

The truth of the matter is that a 5% yield on the 10-year Treasury is “normal,” but it also suggests that a US debt default is approaching far more quickly than most observers care to admit.  What happens when market yields go higher and the US Treasury can no longer refinance debt? American history suggests a Weimar Republic scenario, named after Germany's first constitutional democracy (1918-1933). The US government will simply continue to emit unbacked paper currency until it becomes entirely worthless.

Indeed, the movement of the global bond markets in recent weeks suggests that market yields on public debt are still too low. As market yields rise, the G-20 governments will soon be forced to embrace financial repression in order to avoid an immediate default. In the event, the Federal Reserve Board will become the instrument of financial repression. Banks, 401(k) plans and all savings may be required to hold government debt at artificially low yields as was the case during WWII.  

America has been in what Hyman Minsky called the Ponzi phase of finance since the 2008 financial crisis (See “AI, Debt & the Death of Fear”). The fact that the two major political parties in the national Congress responded to 2008 with trillion dollar fiscal deficits tells you all you need to know about the future of the dollar.

Meanwhile, US officials talk about the “strength” of the US economy without mentioning that we are running a budget deficit of 6% of GDP.  The US economy would be a lot slower given a balanced budget, but interest rates would be far lower. How do we fix the fiscal crisis? Cut the federal budget deficit in half every year. Equity markets would soar and interest rates would plummet.

The end of the dollar system that has prevailed since WWII is not just about the dollar but will engulf all of the currencies that are tied to it. The “winners” of sorts will be states such as China and Russia, which have been accumulating gold and already function outside of the dollar system. Yet neither of these mercantilist dictatorships will thrive in a world without a common exchange medium. 

Gold: One Measure

This summer we’ve been working on our next book, tentatively titled “Gold: One Measure,” this after the command in Deuteronomy. We first wrote about this remarkable rule in our collaboration with Fred Feldkamp: "Financial Stability: Fraud, Confidence and the Wealth of Nations." One of the things about working on a book about gold is that it reminds you that America is not the first sponsor of a global currency and it will not be the last.

When FDR seized the privately owned gold of Americans in 1933, he began a process of currency debasement and inflation that has only accelerated over the intervening decades. The fiat dollar system that was created from the ashes of WW II was an anomaly, especially when you have an increasingly irrational, progressive democracy at its center.

In "Denationalisation of Money," published by the Institute for Economic Affairs in 1976, F.A. Hayek warned that money was “too dangerous an instrument to leave it to the fortuitous expediency … of politicians—or, it seems, economists.” Rather, “our only hope for a stable money is indeed… to protect money from politics.”

The impending demise of the dollar as the world's default currency threatens the world with an extended period of economic disruption and political chaos. In its place, we will likely see a new global standard for value based upon gold. Ponder the decline of organized trade and finance in Western Europe in the centuries following the fall of Rome in 476 AD and you get the idea. 

Next week, we’ll be running Part II of our discussion with David Kotok where we talk about the reemergence of gold as the paramount global reserve asset and the rise of China’s gold based payments system as an alternative to the dollar.

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