Every time the US government has faced an existential financial crisis in its history, it has chosen to change the rules rather than honor its promises in full—usually by replacing gold or silver with paper.
From the War of 1812 when interest payments were missed, to the Lincoln’s Greenbacks, to Roosevelt voiding gold clauses in 1933, the end of silver redemption in 1968, and Nixon closing the gold window in 1971, Washington has defaulted five times before—often by shifting the terms of payment rather than admitting outright failure.
There’s no doubt these episodes were defaults. To claim otherwise would be like trying to unilaterally change the terms of your dollar-denominated mortgage or credit card bill so that you could pay your liabilities with Argentine pesos or Zimbabwe dollars—and then pretending that somehow it wasn’t a default.
The US government is essentially telling its creditors the same thing Darth Vader once said: “I am altering the deal. Pray I don’t alter it any further.”
Just like in Star Wars, the message is clear—Washington will change the rules whenever it needs to. Creditors may get paid, but not in the way they were promised, and certainly not in the way they expected.
Today, the US government is once again in an existential financial bind. The national debt is unmanageable, federal spending is locked on an upward path, and interest on that debt has already surged past $1 trillion a year. At this pace, interest could soon overtake Social Security as the single largest item in the federal budget.
The largest expenditures are entitlements like Social Security and Medicare. No politician will cut them—in fact, they’ll keep growing. Tens of millions of Baby Boomers, nearly a quarter of the population, are moving into retirement. Cutting benefits is political suicide.
Defense spending, already massive, is also off-limits. With the most precarious geopolitical environment since World War 2, military spending isn’t going down—it’s going up.
Welfare programs are similarly untouchable.
The only way to meaningfully reduce spending would be to slash entitlements, dismantle the welfare state, shut down hundreds of foreign military bases, and repay a large portion of the national debt to lower the interest cost. That would require a leader willing to restore a limited Constitutional Republic.
However, that’s a completely unrealistic fantasy. It would be foolish to bet on that happening.
Here’s the bottom line: Washington cannot even slow the spending growth rate, let alone cut it.
Expenditures have nowhere to go but up—way up.
Tax revenue won’t save the day either.
Even if tax rates went to 100%, it would not be enough to stop the debt from growing.
According to Forbes, there are around 806 billionaires in the US with a combined net worth of about $5.8 trillion.
Even if Washington confiscated 100% of billionaire wealth, it would barely fund a single year of spending—and it wouldn’t do a thing to stop the unstoppable trajectory of debt and deficits.
That means interest expense will keep exploding. It has already surpassed the defense budget and is on track to exceed Social Security soon. At that point, interest could consume most federal tax revenue.
The old accounting tricks and fiat games won’t hide the reality for much longer.
In short, the skyrocketing interest bill is now an urgent threat to the US government’s solvency. I have no doubt Washington will soon find itself unable to meet its obligations once again.
So the question now is: what will the sixth default look like?
I don’t think the sixth default will be a dramatic, one-day event like in 1933 or 1971. It will be a slow-motion process: steady debasement of the dollar to cover a debt burden that cannot be serviced honestly. And just like in the past, Washington and its lackeys in the media will never admit it’s a default.
Unlike the past, the US no longer has obligations tied to gold or silver. Everything is denominated in fiat currency that the Federal Reserve can create without limit.
The mechanics are different, but the outcome will be the same: creditors will get stiffed with money worth far less than what was promised.
After the 1971 default, which cut the dollar’s last tie to gold, the unspoken promise was that Washington would be a responsible steward of its fiat currency.
At the core of that promise was the illusion that the Federal Reserve would act independently of political pressures. The idea was simple: without at least the appearance of independence, investors would see the Fed for what it is—a funding arm for spendthrift politicians—and confidence in the dollar would collapse.
That illusion is now shattering.
The government must issue ever-growing amounts of debt while keeping rates low to contain exploding interest costs.
That’s where the Federal Reserve comes in.
Backed into a corner, Washington will force the Fed to slash rates, buy Treasuries, and launch wave after wave of monetary easing. These measures will debase the dollar while destroying the illusion of Fed independence.
That’s why I believe the collapse of the Fed’s credibility as an independent institution will define the sixth default.
One of the clearest signs is Trump’s push to consolidate power over the Fed.
Let’s be clear: central banks were never “independent.” They exist to siphon wealth from the public through inflation and funnel it to the politically connected. The Fed’s independence was always a mirage—and now it’s disappearing fast.
Trump is simply doing what any leader in his position would do. No one believes China’s central bank is independent of Xi. If any nation faced a similar crisis, its central bank would fall in line with government demands.
I expect Trump will get his way with the Fed. The Fed will bend to his demands, debasing the dollar to keep the debt burden from spiraling out of control. He will either force Powell to get in line or replace him outright, stacking the Fed with loyalists. The result will be money printing on a scale we’ve never seen before.
Trump’s efforts are already starting to work. At Jackson Hole, Powell admitted that “the shifting balance of risks may warrant adjusting our policy stance,” signaling that rate cuts could come soon.
And that’s exactly what happened. On September 17, the Fed cut rates by 25bps and indicated more to come.
Further, Stephen Miran, Trump’s most recent successful nominee to the Federal Reserve Board, has been pushing the idea of what he calls the Fed’s “third mandate.”
Traditionally, the Fed has two mandates: price stability and maximum employment. Miran’s proposed third mandate would be for the Fed to “moderate long-term interest rates.”
What that really means is that the Fed would openly finance the federal government by creating new dollars to buy long-term debt, keeping yields artificially low. In other words, the so-called third mandate is an explicit admission that the Fed is no longer independent. It would become a political tool used to fund government spending.
Without this support, massive federal spending would flood the market with Treasuries, pushing interest rates much higher. But with the Fed stepping in, Washington can keep borrowing while holding rates down—at least for a while. The catch is that this comes at the cost of debasing the dollar. Eventually, that debasement will force investors to demand higher yields anyway, which only worsens the problem.
I believe it’s only a matter of time before the Fed fully capitulates, shattering the illusion of independence once and for all.
Mike Wilson, CIO at Morgan Stanley, recently made it explicit:
“The Fed does have an obligation to help the government fund itself.”
“I’d be nervous if the Fed was totally independent. The Fed needs to help us get out of this deficit problem.”
This is the essence of the sixth default.
It won’t come through missed payments or rewritten contracts. It will come through the collapse of the myth that the Fed is independent. Once monetary policy is fully political, the fallout will be enormous—for the dollar, for Treasuries, and for gold.
And it’s not happening in isolation. As Washington sinks deeper into debt, the rest of the world sees exactly what’s coming. Central banks are moving to protect themselves. I believe they know debasement is inevitable, and they don’t intend to be left holding the bag. Their response has been clear: abandon paper promises and move back toward gold.
In short, the sixth default won’t be a headline—it will be a bleed-out.
When the dollar is quietly debased and the Fed’s “independence” finally cracks, it will be too late to reposition.
If you’ve read this far, you already sense the window is closing. Do not wait for confirmation from the evening news.
The question now is not if but how this crisis will unfold, and whether you’ll be on the losing end of it.
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