Brendan Greeley Published October 2 2026
In 1981, economists Tom Sargent and Neil Wallace wrote "Some Unpleasant Monetarist Arithmetic" for the Minneapolis Fed’s Quarterly Review. The article outlined the trade-off between monetary dominance, where government borrowing is constrained by public demand, and fiscal dominance, where the government borrows freely, leaving the central bank with an unpleasant choice between buying bonds or risking inflation.
Since that time, the US has slipped through a wormhole of insatiable demand for sovereign debt. Washington could borrow and spend without constraint, a condition so stable it seemed like a physical law. Treasuries developed what economists call "moneyness" — they were liquid and risk-free like money, often referred to as "cash" by traders. This gave economists the luxury of treating Treasuries as both securities and money.
Historically, the distinctions were clearer. Under Alexander Hamilton's system, the early American republic sold its debt to investors for banknotes and silver, not issuing it as currency. The Hamiltonian system assumed Washington's debt is a bond, not money. During the Civil War, however, the practice of using government debt as cash reemerged.
Source: Financial Times Markets · Summarized by HeadlinesBriefing