From Fiscal Dominance to Bubble Dominance: Why the System Is Now Driven by Financial Instability

In a debt-driven economic system, the central objective is neither GDP growth nor inflation control, but debt sustainability.

Once you understand this, the actions of central banks become crystal clear: they deliberately maintain structurally low interest rates and tolerate higher inflation to ease the burden on governments.

Believing that governments in aging societies will suddenly slash deficits and meaningfully reduce debt levels is simply naive. Low rates and persistent inflation are in fact the slow death of pensions, traditional savings, bonds, and the classic 60/40 portfolio, which has become hopelessly obsolete.

The solution? It is deceptively simple.

When money, inflation, and debt are abundant, you must store value in what remains scarce — classic Ferraris, Van Gogh paintings, fine wine… and, even better, scarce financial assets such as gold and bitcoin.

Will this debt-driven system collapse? Not necessarily.

But what if the real adjustment is different? What if the value of gold and bitcoin rises exponentially relative to the “value” of fiat money and debt? For thousands of years, societies functioned with money backed by real value. We may be witnessing today the Great Rebalancing.

Yet the vast majority of investors are completely unprepared. Endowments, family offices, financial advisors, insurers, pension funds, and sovereign wealth funds remain heavily invested in stocks and bonds. Private equity and private debt are often just riskier, less liquid versions of the same exposure.

This analysis is Jeroen Blokland analysis.

I do not share Jeroen Blokland’s analysis — not because it is wrong or illogical, but because it is outdated.

Fiscal dominance was yesterday. Surging deficits, uncontrolled spending, and the political impossibility of stopping debt accumulation did impose classic fiscal dominance: continuously falling rates down to zero, financial repression with negative rates, debt monetization through revolving doors and other tricks.

But that phase has produced a massive side effect: an unprecedented financial asset bubble, far larger than the real economy’s cash flows can support. This mountain of assets is inherently unstable and fragile. Its value can collapse from the smallest shock. To keep it standing, it is no longer enough for “everything to go well.” Whenever anything is less than perfect, authorities must flood the system with liquidity to stabilize the pyramid.

We have moved beyond fiscal dominance.

We have entered the era of financial and market dominance.

The asset pyramid now dictates policy. The Bubble is in charge.

Conclusion We have shifted from a world where debt constrained policy to a world where the Bubble constrains everything else.

Debt sustainability is now merely a pretext.

The real objective has become bubble sustainability.

As long as this pyramid holds, authorities will have no choice but to feed it — whatever the cost in distortions, injustice, and destruction of savings. But the day it wobbles — and it will wobble — it will not be a simple market correction. It will be the end of an entire monetary and financial regime.

At that point, those who understood that the Bubble, not the State, is the new master — and who positioned themselves accordingly — will survive. The others will discover, too late, that you do not negotiate with a bubble. You endure it.

The Bubble commands. Prepare accordingly.