US Fiscal Primacy Shifts Global Policy Landscape as Debt Levels Soar

The concept of fiscal primacy is gaining prominence as global economic and geopolitical regime change accelerates. According to David Skilling, director at Landfall Strategy Group, this shift will lead to a reversal of the policy hierarchy of the past few decades, where monetary policy was dominant.

Under the market state, which has been in place for 35 years, activist fiscal policy was largely retired in favor of fiscal discipline and rules. However, with the rise of state capitalism, fiscal policy is becoming the key instrument to deliver strategic policy imperatives.

The US fiscal position is a significant driver of this change. With federal debt/GDP at record peacetime levels (100% of GDP), policymakers face substantial constraints on monetary policy. Keeping interest rates low will become crucial to prevent a surge in debt-servicing costs, which are already 3% of GDP and forecasted to rise sharply.

Recent events demonstrate the return of fiscal primacy: the US-Japan intervention to support the yen, the Federal Reserve's decision to hold rates under new Governor Warsh, and the imposition of US tariffs. These actions are motivated by a common fiscal constraint, governments must manage risks to foreign demand for Treasuries and contain borrowing costs.