How to End Mortgage Lock-In and Get Americans Moving Again

Old low-rate loans and capital gains on inflated values are stopping homeowners from selling.

Published with Paul H. Kupiec in The Wall Street Journal.

Many Americans are stuck in place. Since 2022, annual sales of existing homes in the U.S. have fallen to about 4.1 million—the smallest number since the mid-1990s, when the U.S. population was 22% smaller. This market is depressed despite robust economic growth. Why? Lock-in effects caused by existing low-rate mortgages and capital-gains taxes on home sales at inflated prices.

Cheap interest on mortgages from before mid-2022 are keeping homeowners from trading up to accommodate a growing family, relocating for a new job, or downsizing for retirement. Consider a home financed in December 2020 with a 30-year mortgage of $400,000 at 2.9% interest, then the national average. Under standard amortization, the homeowner’s monthly payment is $1,665.

Should the homeowner sell in December 2025, the remaining balance, due on sale, is $354,974. But today’s higher interest rates make the older mortgage a bargain. Given the national average mortgage rate of 6.27%, the remaining payments on the existing mortgage would support a loan of only $251,915. The difference, $103,059, is the capitalized value of keeping the current low-rate mortgage.

Most mortgages in the U.S. require the remaining balance to be paid off when the property is sold. Not all, though. Mortgages financed through Federal Housing Authority or Department of Veterans Affairs are “assumable,” meaning they can be taken over by qualified buyers. But the qualification process is cumbersome, and loan assumptions completed by FHA and the VA are rare, totaling fewer than 6,500, or less than 0.2% of mortgage transactions, in 2023, the last year for which data is available.

A simple risk-free financial transaction, however, could motivate owners to sell by allowing them to realize the value in their below-market mortgages. This is a standard practice in the Danish mortgage system; it could be done in the U.S. by creating a “defeasance” account at settlement to pay the remaining monthly payments on the existing mortgage on time and in full. Existing due-on-sale mortgage contracts prohibit this, but legislation could remove that unnecessary legal impediment and make it possible through the following process:

The federal government appoints a financial agent—the Treasury or the Department of Housing and Urban Development—to manage mortgage defeasance accounts. The defeasance manager provides the seller or settlement agent with a fair-market valuation of the remaining payments on a home’s outstanding mortgage, determined using the current market prices of a portfolio of Treasury securities. The defeasance account manager collects this market value at settlement, and invests the proceeds in the appropriate U.S. Treasury securities, generating the cash flow needed to pay off the remaining monthly payments on the existing mortgage.

The underlying real-estate collateral is replaced by the Treasury securities. The defeasance agent’s guarantee to remit the remaining mortgage payments to the mortgage servicer on time and in full substitutes for the home seller’s liability. The lender has no remaining credit risk except the U.S. government.

The defeasance transaction involves no “uncompensated taking” and doesn’t generate a financial loss for a mortgage lender. The borrower is merely exercising the option to make contractual mortgage payments until the mortgage matures, an undoubted right. The federal guarantee of full and timely mortgage payments is more than adequate to replace the original mortgage collateral—a house that could fall in value.

Inflated capital-gains tax liabilities are also depressing existing-home sales. Many longtime owners face taxes on home-price gains that exceed the exclusion limits set in 1997, $250,000 for a single filer and $500,000 for a married couple filing jointly. In the Northeast, the average sale price of a home increased from $231,400 in 1997 to $1.17 million in the second quarter of 2025, a nominal gain of $939,400 on an average-priced home. Since 1997, consumer prices and the nationwide median sales price of a home have doubled. Doubling the tax exclusions would simply adjust the exclusion values for inflation.

Homeowners locked in by ultralow mortgage rates or inflated capital-gains liability tend to belong to different generations. Younger homeowners are likely to have financial gains from home-mortgage loans originated before 2022, while taxable capital gains are likelier to keep long-tenured baby boomers from selling. Either reform by itself might lack the political support to make its implementation feasible, but together the reforms benefit several generations directly—and they have what it takes to revive the real estate market.

The Fed, Gold, and Crypto: Freedom and Competing Currencies

Published by The Mises Institute.

This article is adapted from a lecture presented at the 2025 Supporters Summit in Delray Beach, Florida.

Economic freedom should include freedom in money. It’s a freedom even, as we say these days, that advanced economies don’t have. My guiding text for this talk is Friedrich Hayek’s celebrated essay “Choice in Currency.” That is chapter 7 of this excellent book—Hayek for the 21st Century: Essays in Political Economy—that the Mises Institute has published. It’s a classic text, and I hope you’ll all take a look at it if you haven’t.

Now, freedom and money, Hayek suggests, can in concept be created through competition, through freedom of choice in money. That is to say, let the people use any money they want. Let the monies compete with each other, and the superior monies, just like in any competition, will win out. The opposite of this is, of course, a government monopoly in money, which allows the government to inflate.

The point I wish to make is that the ability to control the money is a deep and fundamental source of the power of the state. Each central bank (in our case, the Federal Reserve), of course, is part of the state and a key helper in the project of expanding and maintaining the power of the government over the people. Now, we can think about this. I know you know this already. It’s very simple, but let’s just say it again to remind ourselves. To stay in power, governments have to keep spending money. They need to give money to their friends, to give money to their supporters, to carry out their various projects, and—most expensive of all—to have wars.

In the meantime, people don’t like being taxed, so the politician is put in the position of wanting to spend without taxing. And what’s the answer? Well, you borrow. If the lenders don’t want to lend to you, you simply have a compliant central bank to print up the money that you need, and to buy your bonds, as we have observed over long periods of time now.

That way, you can keep spending. That way, you can maintain your position of power for the government.

Of course, at the same time, you’re depreciating the currency. You have inflated prices, you’ve taken away the people’s purchasing power, which is a kind of implicit taxation, and destroyed part of the value of their wages and their savings. In short, as Hayek writes, “Practically all governments of history have used the exclusive power to issue money in order to defraud and plunder the people.”

Further, Hayek says, “The politician, acting on a modified Keynesian maxim that in the long run we are all out of office”—I think that’s a wonderful line—wants “more and cheaper money,” which is “an ever-present political force which monetary authorities have never been able to resist.”

Well, is it true that the central bank can’t resist? I think it is. On one side of this argument, we had Nobel Prize–winning economist Thomas Sargent, who proposed in 1982 that we just need central banks that are legally committed to refuse the government’s demand for additional credit. In other words, just to say no to financing deficits with newly created money.

So I wish you to picture this. The Treasury has come to the central bank and said, “Here are these bonds. We want you to buy them.” Imagine the head of the central bank saying, “Well, I’ve got your request, but sorry, we’re not buying a penny of your debt with money we create. Of course, we could do it, but we won’t. So just cut your government expenses and good luck.”

I doubt that this would be a winning career move for a politically appointed chairman of the central bank, and I suspect you doubt it too. And I suspect that its probability is something close to zero, don’t you think? Moreover, in a time of war or other national emergency, the likelihood of this response is precisely zero.

So Hayek, in a very creative intellectual move, says that instead of trying to improve the behavior of the central bankers—which we’re all working on, and we ought to keep working on it—here’s something more radical. Let us simply, quoting Hayek here, “deprive governments (or their monetary authorities) of all power to protect their money against competition.”

Let them go ahead and keep printing up their paper money, just as always. Let them buy as many bonds of the government—finance as many deficits—as they want, but don’t let them have a monopoly in this money. So the money they create for deficit financing, to improve the power of the state, has to compete with some other money that will come along.

Hayek continues, “If people were free to refuse any money they distrusted”—in other words, you can’t have a legal tender law—“and to prefer money in which they had confidence,” there could be no “stronger inducement to governments to ensure the stability of their money.” So make the government compete with other monies, and as in other cases of competition, you’ll improve the quality of the product. And this idea of Hayek’s is indeed consistent with a free society.

Hayek concludes, “I hope it will not be too long before complete freedom to deal in any money one likes will be regarded as the essential mark of a free country.”

Well, that was 50 years ago and we’re not there yet. But today this thought is especially congenial to those who want private cryptocurrencies to compete with dollars, and this Hayek essay is enormously popular among advocates of cryptocurrencies, and taken as a kind of canonical text for competition in currency. It is a philosophical position consistent with their creation.

I do want to note in passing—because stablecoins have been much in the news of late, and we have the GENIUS Act, very favorable to stablecoins—that this thought does not apply to stablecoins because stablecoins are just part of the dollar system. If the dollar is depreciating, your stablecoin is depreciating, too. It doesn’t achieve the Hayekian purpose of competition in money because it’s just part of the dollar monopoly. So, it doesn’t present a competitive currency.

But Hayek, thinking about the possible competitors to the government’s fiat currency, was not really focused on other things that are themselves fiat currencies, whether they be fiat currencies issued by other governments. You could have the euro competing with the dollar, for example, or private fiat currencies such as bitcoin, which isn’t yet a currency but wishes to be.

Hayek was really thinking of gold. This is something about this celebrated essay I think is not usually properly understood. Hayek’s original speech was given in 1975. That was the year after the United States at long last lifted its oppressive 1933 law making it illegal for Americans to own any gold; that is to say, illegal to protect themselves from the depreciation of the monopoly currency of the government.

This ban on gold was an amazing act by the United States, actually, when you look back on it now. It does show how far a government will go to protect the monopoly of its own fiat currency.

So, thinking about gold in contrast to this, Hayek says, “Where I’m not sure is whether in such a competition for reliability any government-issued currency would prevail, or whether the predominant preference would not be in favor of . . . ounces of gold. It seems not unlikely that gold would ultimately re-assert its place as ‘the universal prize in all countries, in all cultures, in all ages,’ . . . if people were given complete freedom to decide what to use as their standard and general medium of exchange.”

What do you think? If we had free competition in monies, do you think that gold would win out as the preferred competitor and thereby force the governments to issue sounder currencies? An interesting thought.

As Hayek also wrote, famously and correctly, competition is a “discovery procedure.” We find out through competition things we couldn’t know otherwise, and if we had such a competition in currencies, that would give us the answer.

Now, think how much things have changed since Harry Dexter White, the chief American negotiator at the Bretton Woods Conference in 1944 and also, as you may recall, a spy for the Soviet Union, asserted that gold and the US dollar were “synonymous.”

We’ve come a long way from Harry Dexter White’s thought there.

As we know, the price of gold and dollars is over $4,000 at the present time. Just think about that relative to the par value exchange rate of dollars and gold out of Bretton Woods, which was $35 an ounce. That’s a factor roughly of 100 to 1. We didn’t quite achieve Harry Dexter White’s synonymousness of dollars and gold.

Now, it’s equally correct to think about the price of dollars in gold as it is to think about the price of gold in dollars. So, in that sense, the price of dollars is down 99% since 1971. One winner of this is the US Treasury, since the US Treasury is long gold, holding 8,000 tons, which is over 261.5 million ounces. So, the unrealized profit to the US Treasury on its gold position is basically $1 trillion.

It’s not on the books, but it’s the reality of the Treasury’s gold position. Now, this contrasts with a notable opinion piece in the Financial Times from about 20 years ago (April 16, 2004), which had the headline “Going, Going, Gold: The Pointlessness of Holding Bullion Continues to Sink In.”

“The barbarous relic, as Keynes called it, is crumbling to dust,” wrote the Financial Times. “For central banks and governments to hold [gold] is a betrayal of the public.” “Gold is on its way out,” they concluded.

Well, things change in economies, as we know. At the time that article was published, the price of gold in dollars was $400, so it’s more than 10 times that now. And at that point, central banks were, as a group, selling gold. Now central banks are buying heavily, and they’re building their positions with gold as a reserve currency. Sort of interesting. Central banks were selling at the bottom, and they’re buying at what might be the top. But that’s perhaps natural human behavior.

My brother Bruce, who lives in Switzerland, remembers that 20 years ago, when the Swiss central bank was forced to sell gold by its politicians, his friends who worked for the bank literally were crying when they were forced to sell their gold.

But today, many central banks are buying gold and increasing gold in their reserves. Can this central bank market for gold perhaps be considered an example of the free competition in currencies which Hayek envisioned?

After all, whatever the case was right after World War II, now no country can force other countries to accept the monopoly of its currency. And among central banks, there actually is choice in which currencies, including gold, to hold in their reserves. So this movement in gold is extremely interesting in and of itself. But something particularly interesting about it is that it seems to be a case of a Hayekian competition in currencies.

Now, an insightful essay by Anthony Deden suggests that when we’re looking at the gold price today, we’re not really looking at gold going up. We’re looking at the dollar going down, or fiat currencies in general declining. This strikes me as quite correct. Deden continues, “If you hold fiat money, you have a claim on the future discretion of politicians. Whereas if you hold gold, you have a claim on the future indiscretion of politicians.”

I think that’s very nice. Or you might say gold is a hedge against the state’s pursuit of power by monetary means.

We can guarantee that as long as it’s able to, through monopoly fiat currency, the state will continue to maintain and expand its power through monetary means. So the state will prevent the competition that Hayek envisioned from occurring, but it can’t prevent it in this interesting international case of central banks.

I think if we contrast the freedom-of-money case that Hayek makes—which will be hard to do in any domestic context because the state will not sit happily by and allow for competition that will reduce its power (we know that)—with the international central bank case, that sharp contrast, I think, is a major reason to study this justifiably celebrated chapter in this book. Thank you.

How far can U.S. house prices fall?

Published in Housing Finance International Journal.

U.S house prices have become bloated in America’s second house price bubble of thefirst quarter of the 21st century. These prices are now far over the peak they reached in the infamous housing bubble of the early 2000s. According to the S&P CoreLogic Case-Shiller National House Price Index, house prices in September 2025 were at a level of 327.6, compared to the first bubble’s then-monumental peak of 184.6 in 2007. In other words, they are now 77% over the previous top.

This is widely considered a housing affordability crisis, since large numbers of people, especially young families and other first-time buyers, cannot afford houses at this historically normal level of U.S. mortgage interest rates. Said Sean Dobson, CEO of the real estate company, The Amherst Group, “We’ve probably made housing unaffordable for a whole generation of Americans.”[1]

The median price of a single-family residence in 2024 was 5 times the median household income, the Harvard Joint Center for Housing Studies reported, while a historically normal level is more like 3-4 times. Amherst Group’s analysis concludes that if you keep mortgage lending rates and household income at their current levels, to reach the affordability of 2019, U.S. house prices would have to fall 35%.[2]

The “‘Affordability Crisis’ Can’t Be Solved,” a Wall Street Journal headline pessimistically suggested.[3] On the contrary, of course it can: house prices can fall. The whole point of prices is to go down as well as up. But how did they get so high to begin with?

The second extreme inflation of U.S. house prices of this still-youthful century was stoked by the massive, unprecedented and in my view, unjustifiable, buying of mortgages by the Federal Reserve. The Fed purchased mortgage assets for the first time in its history in 2008, as an emergency intervention while the first bubble was collapsing. The Fed promised Congress, and genuinely intended, that such buying would be temporary, would be reversed, and would not affect the longer-run size of its balance sheet.

But instead, the Fed’s mortgage expansion continued until 2022 – for fourteen years. Along the way, it forced 30-year fixed mortgage interest rates to abnormally low and unsustainable levels of below 3%. The Fed’s mortgage portfolio, an asset it had never historically owned, reached the staggering level of $2.7 trillion, three times as big as the whole Fed had been in 2007, as the Federal Reserve turned its balance sheet into the equivalent of the world’s biggest savings and loan. As of November 2025, this portfolio is still huge at $2.1 trillion, with a mark-to-market loss of $323 billion as of the last report on September 30. Its former promises to the Congress of reversing the investment notwithstanding, the Fed cannot sell its huge mortgage portfolio without realizing massive market value losses and pushing mortgage interest rates higher.

When the Fed stopped increasing the size of its mortgage portfolio in 2022, U.S. mortgage interest rates quickly rose to historically common levels of 6%-7%. Many observers, including me, were surprised that this doubling of the interest cost of a house purchase did not cause a sustained, significant fall in average house prices, but national indices of house prices continued an upward trend. However, the volume of house purchases shrank dramatically, to the lowest levels in three decades. The increasing prices were thus on a much reduced volume of transactions.

The rate at which prices were rising slowed steadily in 2024 and 2025. The AEI Housing Center projects November 2025 at a 0.7% year-over-year national house price increase, expecting it to fall in December to zero for the full year 2025. The Center comments, “This will mark the first time since 2011 that December year-over-year house price appreciation has been at about zero.”

Since U.S. inflation is running at 3%, if nominal house prices are flat, in real terms they are falling at a rate of 3%.

The Housing Policy Council, using data from the Federal Housing Finance Agency, has calculated the deviation of U.S. house prices from their long-term, inflation-adjusted trend line. As of the third quarter of 2025, it concludes that house prices were 30.8% over their long-term trend. This is similar to the first quarter of 2007, at the top of the first 21st century bubble, when they were 29.5% over the trend. In that bubble, what happened next was that U.S house prices fell until 2012 by a total of 27% in nominal terms.

In this context, let us consider some cities where mid-tier house prices have already fallen by 15% to 25% from their most recent peak (which was usually in 2022), while the national index was still rising. Wolf Richter has helpfully listed these for us, using data on mid-tier houses from the Zillow Home Value Index:

Oakland, California -25%

Austin, Texas -24%

New Orleans, Louisiana -19%

Lee County, Florida -16%

Manhattan, New York -16%

Sarasota County, Florida -16%

San Francisco, California -15%[4]

Although these are large percentage declines, they are from extreme peaks and leave prices still at high levels. Taking the top two on this list, for example, house prices in Oakland after a 25% fall are still more than 40% over their first bubble peak. In Austin, after falling 24%, they are still more than double their level in first bubble times. This seems to leave room for further declines.

On the cause of the second bubble, consistent with my discussion above, Richter writes, “The below-5% average 30-year fixed mortgage rates were an aberration caused by an explicit policy by the Federal Reserve to repress mortgage rates to trigger the biggest bout of home price inflation this country has ever seen.”

As to what can now be done about the unaffordability of houses, he reaches this sensible conclusion: “The solution of the affordability crisis is many years of rising wages and falling house prices that over time would unwind the crazy home price explosion.”[5]

Where do U.S. house prices go from here? In my view, it seems unavoidably down. But by how much? I don’t know and neither does anybody else. The AEI Housing Center has a preliminary projection of down 1% for 2026, but that would not correct much of a 30% overshoot from trend. The Center adds that risks are to the downside, as they surely are.

Without venturing a numerical guess, I do observe that financial history demonstrates that asset prices after a bubble can go down more than most people, who consider only recent experience, consider possible. The lessons of longer history are that the answer to the question, “How much can asset prices fall?” is liable to be “More than you think.”

1 “The Price of Economic Firefighting,” Fortune, November 15, 2025.

2 Ibid.

3 Wall Street Journal print edition, November 24, 2025, p A2.

4 “The 14 Bigger Cities and Counties with the Biggest Price Declines,” Wolf Street, November 23, 2025.

5 “Mortgage Rates Are Not Too High. What’s Too High Are Home Prices,” Wolf Street, November 29, 2025.

Federal Reserve’s Independence Emerges as Culprit in the ‘Unaffordability’ of Housing

Home prices are now 77 percent above their peak in the housing bubble of the early 2000s.

Published in The New York Sun.

America appears to be at the top of its second house price bubble of the first quarter of the 21st century. House prices are now 77 percent above their 2007 peak in the housing bubble of the early 2000s, according to the S&P CoreLogic Case-Shiller National House Price Index.

This second inflation of American house prices in the still-youthful century was stoked by the unprecedented and unjustifiable buying of mortgages by the Federal Reserve. The central bank purchased mortgage assets for the first time in its history in 2008, as an emergency intervention while the first bubble was collapsing.

The Fed assured Congress that such buying would be temporary, would be reversed, and would not affect the longer-run size of its balance sheet. Instead, the Fed’s mortgage expansion continued until 2022 — for 14 years. Along the way, it forced 30-year fixed mortgage interest rates to abnormally low and unsustainable levels of below 3 percent.

The Fed’s mortgage portfolio, an asset it historically had never owned, reached the staggering level of $2.7 trillion. This was three times as big as the whole Fed had been in 2007, as the Federal Reserve turned its balance sheet into the equivalent of the world’s biggest savings and loan.

As of December 2025, the mortgage portfolio is still huge at over $2 trillion; it had a remarkable mark-to-market loss of $323 billion as of the last report on September 30. The Fed’s former promises to the Congress of reversing the investment notwithstanding, the Fed cannot sell its huge mortgage portfolio without realizing market value losses and pushing mortgage interest rates higher.

The current bubble is widely considered a housing affordability crisis, since large numbers of people, especially young families and other first-time buyers, cannot afford houses at the now historically normal level of U.S. mortgage interest rates. “We’ve probably made housing unaffordable for a whole generation of Americans,” said the chief executive, Sean Dobson, of a real estate company, the Amherst Group.

Amherst Group’s analysis finds that if we keep mortgage lending rates and household income at their current levels, to reach the affordability of 2019, U.S. house prices would have to fall 35 percent. The “‘Affordability Crisis’ Can’t Be Solved,” a Wall Street Journal headline proclaimed. On the contrary, though, it can: House prices can fall. The whole point of prices is that they can go down as well as up.

When the Fed stopped increasing the size of its mortgage portfolio in 2022, United States mortgage interest rates quickly rose to historically common levels of between 6 percent and 7 percent. Many observers, including me, were surprised that this doubling of the interest cost of buying a house did not cause a sustained, significant fall in average house prices but national house price indices continued an upward trend.

However, the volume of house purchases shrank dramatically, to the lowest levels in three decades. So the increasing prices were on a much reduced volume of transactions. The rate at which house prices were rising has slowed steadily in 2025. Now the AEI Housing Center projects the year-over-year national house price increase to fall to zero in December for the full year 2025.

Since U.S. inflation is running at 3 percent, if nominal house prices are flat, in real terms they are declining at a rate of 3 percent. The Housing Policy Council has calculated the deviation of U.S. house prices from their long-term, inflation-adjusted trend line. As of the third quarter of 2025, it concludes, house prices were 30.8 percent higher than their long-term trend.

This is similar to the first quarter of 2007, at the top of the first 21st century bubble, when house prices were 29.5 percent higher than the trend. What happened next, that time, was that American house prices fell by a total of 27 percent, dropping until 2012. Where do home prices go this time? It seems to me that the direction is unavoidably down. By how much? I don’t know and neither does anybody else.

The repeated housing bubble shows yet again what a bad idea is Federal Reserve “independence.” Who approved the Fed’s plunge into mortgages which inflated a new bubble? Who approved the consequent risk to the Fed’s own finances, which resulted in tens of billions of losses to the Fed, the Treasury, and the taxpayers?

No one. No part of the government, especially one with the power to make such costly mistakes, should ever operate as a law unto itself. It is high time for this to be made clear by the Congress, which is the creator and overseer of the Federal Reserve.

What Does the Fed Mean To You?

Hosted by the Mises Institute.

Mises Senior Fellow Alex J. Pollock explains how the post-1971 “Nixonian” paper-money world makes the Fed both the engine of inflation and a prop for an oversized state, urging students to see central banking as the hidden arsonist behind booms, busts, and the erosion of their future purchasing power.

Recorded at Cornerstone University in Grand Rapids, Michigan, on November 1, 2025.

Why stablecoin failures could happen again

Published in the Financial Times.

“If stablecoins are not that stable,” governor Olaf Sleijpen of the Dutch central bank warns you end up in a situation where the underlying assets need to be sold quickly, which creates financial stability risks (Interview, November 19). Meanwhile the Nobel laureate economist Jean Tirole says it could result in government bailouts (Interview, September 2).

However this is not really a question of “if”, since stablecoins have already had a government bailout in the US.

Circle’s USD stablecoin held more than $3bn in uninsured, at-risk deposits as “reserves” in the failed Silicon Valley Bank. It should have suffered huge and well-deserved losses on this investment but instead it was egregiously bailed out, along with other crypto and venture capital barons, by the US government. The authorities shifted the losses from the wealthy depositors to the Federal Deposit Insurance Corporation, based on an emergency “systemic risk” declaration.

Could this happen again? Absolutely. The root and continuing problem is that stablecoin issuers are not limited to holding short-term Treasury bills, as is often erroneously claimed, but in reality are empowered to invest in at-risk deposits in both domestic and foreign (from the US viewpoint) banks. The so-called Genius Act regulating stablecoins explicitly provides for this.

Are large, uninsured deposits risky? Of course they are. More than 3,000 US-insured depository institutions have failed since 1980, and many more would have failed if not for recurring government bailout programmes, most recently in 2023. The inclusion of non-US banks adds extra risk, because, in addition to their potential failure, their dollar-denominated deposits are foreign currency liabilities to them, and ultimately depend on the Federal Reserve’s willingness to lend dollars to their own central banks.

The Genius Act thus deeply entangles stablecoin and banking risk, and just as happened in the Silicon Valley Bank case, can transmit banking crises into stablecoin crises: a systemic stability problem indeed.

Austrian school of economics

Published in Wikipedia.

They also argue that cryptocurrency and Bitcoin serve as a "Hayekian escape", a method that people can use to escape the government's currency monopoly, particularly during periods of hyperinflation.[93]

—

93 Pollock, Alex J. (2022-03-30). "Are Cryptocurrencies the Great Hayekian Escape? – Alex J. Pollock". Law & Liberty. Retrieved 2025-10-23."

Does the Fed have an ethics problem?

Published in American Banker.

Expert Quote: "When you're in a position that's as influential as working at the Federal Reserve, you're governed by the law of Caesar's wife — be above suspicion." — Alex Pollock, senior fellow at the Mises Institute.

What Have the Inflation-Mongers Wrought?

Our still-young 21st century has already had two bubbles in United States house prices.

Published in The New York Sun.

Is the Federal Reserve an “inflation-monger,” as monetary economist Brendan Brown labels it in his new book, “Bad Money”? Of course it is. The Fed has stuck us with a constant depreciation of the purchasing power of the dollar. With its “inflation targeting” regime beginning in 2012, it promises to continue to depreciate the dollar forever, inflation without end.

Fed representatives have now been known to opine that inflation is too low and they should get it up. That is a radical departure from their forebears. William McChesney Martin, chairman of the Fed between 1951 and 1970, considered inflation “a thief in the night.” Alan Greenspan, the chairman between 1987 and 2006, said that he thought the ideal inflation rate was “zero, properly measured.”

The Fed’s actions have not lived up to its words in this respect, but from Chairman Ben Bernanke on, the Fed has forsaken even the words and changed its tune to inflation-promising. At the same time, the Fed constantly plays the refrain that it must be “independent.”

It is, of course, nonsense to think that any part of a constitutional republic can be a separate and autonomous power, a law unto itself, or a band of platonic philosopher-kings.

If one believed, however, that the Fed truly stood for sound money and would control the inflationist urges of presidents and other politicians, you might feel a twinge of temptation toward the independence line. Yet since the Fed itself is inflationist, its “independence” has no appeal at all, on top of being constitutionally wrong.

The logic of Mr. Brown’s argument should be widely understood. Here it is, in summary:

Good Money displays stable purchasing power and reliable value on average over time. Bad Money always depreciates in value and has shrinking purchasing power, as the government and its central bank impose inflation on the people.

Individual prices must go up and down to fulfil their essential role in resource allocation. But inevitably the overall tendency of prices will sometimes rise, especially when there are wars or other crises which get financed by monetary expansion.

Because prices will sometimes rise, in order for prices to be stable on average over time, at some other times prices must fall. Stated alternately: If prices don’t fall sometimes, you can’t have stable prices.

Yet should overall prices ever be allowed to fall? That is what the inflation-mongers want precisely to prevent. They wish to reinflate any periodic tendency for prices to fall. Under this doctrine, every time prices go up, they create a permanently higher level, and then continue inflating from there.

The inflation-mongers always emphasize changes in the rate at which prices are rising, not the ever-higher level of prices that is so obvious to ordinary consumers. When the rate of increase in prices is 3 percent instead of 4 percent, they can announce that “inflation is down.”

Yet “inflation is down” entails “prices are up.” At 3 percent inflation over an 80-year lifetime, prices will multiply by a factor of more than 10. A dollar will become nine cents, but we would be told that “inflation is stable.”

Inflation-mongers suffer from the fear of any fall in average prices, or “deflation phobia.” This probably arises from memories of the 1930s, but a knowledge of longer economic history gives a wider view.

While a debt deflation in the wake of a collapsed bubble is indeed bad deflation, periods of major innovation and increasing productivity in a competitive economy naturally cause prices to fall, thereby improving the standard of living. This is good deflation.

There are three kinds of inflation: Monetary inflation by the central bank; inflation of goods and services prices; and inflation of asset prices. If the economy is benefitting from good deflation resulting from innovation and productivity, but the inflation-mongers offset this by monetary inflation, the resulting inflation rate in goods and services may still look acceptable, but is greater than it looks.

If it has been moved, say, to +2 percent in goods and services from a natural -1 percent, the move has actually been 3 percent. The monetary inflation would likely also flow into asset price inflation and recurring asset price bubbles.

Our still-young 21st century has already had two bubbles in United States house prices. Both reflected among their key causes artificially low interest rates from Federal Reserve monetary inflation, which stoked artificially high house prices.

The first housing bubble ended in a terrific collapse, the second has caused a crisis of unaffordability and now appears to be topping out far over the peak of the first. This the inflation-mongers have wrought.

Even 2% Inflation Is Too Much

Published in The Wall Street Journal.

As you suggest in “Getting Used to 3% Inflation” (Review & Outlook, Oct. 25), 3% is a lot of inflation, much worse than 2%, which is already too high. At a sustained 2%, which the Federal Reserve promises, average prices will nearly quintuple in 80 years, and the dollar will shrink to a value of 20 cents. At 3%, it’s worse: Average prices will multiply more than 10 times, and the dollar will reduce to 9 cents. Neither satisfies the goal of “stable prices” assigned by the Federal Reserve Act. As the great Paul Volcker wrote in his autobiography, “The real danger comes from encouraging or inadvertently tolerating rising inflation and its close cousin of extreme speculation.”

Alex J. Pollock

Mises Institute

Lake Forest, Ill.

Banking Risk & Stablecoins, with Alex Pollock

Hosted by infineo.

Alex Pollock has decades of experience in banking operations and regulation, including serving as the CEO of the Federal Home Loan Bank of Chicago and a director of research position at the US Treasury. He joins Bob to discuss the GENIUS Act and the potential risks that banks pose to stablecoin issuers.

Hayek’s Last Hurrah, So To Speak: A Choice in Currency Emerges Among Central Banks

Many are scrambling to purchase the precious metal as the gold value of the greenback plunges to new lows.

Published in The New York Sun.

Since 1971, in the Nixonian monetary era, the American government has enjoyed a power derived from the pure fiat paper money that its central bank can print in unlimited quantities to finance the government’s deficits. Simply put, politicians naturally like to keep passing out money to stay in office. It’s convenient, politicians reckon, to have a compliant central bank to buy government bonds with printed money — especially if the Congress is spending more than taxes bring in.

Of course, this scheme depreciates the currency, taking away the people’s purchasing power and the value of their savings and wages. As Friedrich Hayek observed in his essay “Choice in Currency,” “Practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people.”

Hayek argued that the essential problem is that the government’s central bank has an “exclusive power” to print money, or in other words, a monopoly on money, so it can impose its depreciating currency on the people. He suggested that since there is no hope of reforming the central bank, instead we should focus on taking away its monopoly. Thus:

“Let us deprive governments [and] their monetary authorities of all power to protect their money against competition.” Then “if people were free to refuse any money they distrusted and to prefer money in which they had confidence, [there] could be no stronger inducement to governments to ensure the stability of their money.”

In other words, let choice in currency and competition among currencies discipline the government and its central bank. If they produce an inferior money, that money would lose out to the better one supplied by someone else. This was an innovative application of classic market logic to the problem of money, one notably consistent with a free society.

Hayek concluded, “I hope it will not be too long before complete freedom to deal in any money one likes will be regarded as the essential mark of a free country.” A recent introduction to Hayek’s thought observes that this essay “is enormously popular among advocates of cryptocurrencies.”

Hayek, in any event, was not most concerned with competition for the government’s fiat currency by other fiat currencies, whether those of other governments or private currencies. He was really thinking of gold. “It seems not unlikely,” he suggested, “that gold would ultimately reassert its place as the universal prize if people were given complete freedom to decide.”

Hayek’s essay originated shortly after the American government at long last lifted its oppressive 1933 prohibition of Americans owning any gold, which it had made into a criminal offense. All Americans were prohibited by their government from protecting themselves with gold from the ongoing depreciation of their currency by the Federal Reserve.

That may seem amazing to us now, but it clearly shows how far even a democratic government will go to protect the monopoly of its own fiat currency. The chief American negotiator at the 1944 Bretton Woods Conference, Harry Dexter White, claimed that for international use, “the United States dollar and gold are synonymous,” as Benn Steil reports in “The Battle of Bretton Woods.” We are a long way from there.

With the value of a thousand American dollars currently at about one-quarter of an ounce of gold, as compared to the old Bretton Woods price of 28.6 ounces, the value of the dollar has depreciated by 99 percent against gold. White’s view did not hold up, and neither did the confident assertions of this Financial Times editorial from 2004:

“The barbarous relic is crumbling to dust,” the FT’s editors wrote. “For central banks and governments to hold it as a reserve asset is a betrayal of the public. Given the pointlessness of holding gold, gold is on its way out as an investment and as a reserve asset.”

Today, in contrast, many central banks are buying gold and increasing the allocation to gold in their reserves, and the unrealized profit of the U.S. Treasury on its gold has reached about $1 trillion. The Fed, meanwhile, owns no gold, and adding together its operating and mark to market losses has a total loss of around $1 trillion.

The international market for central bank reserves cannot be monopolized like a domestic currency can. Perhaps in this central bank market we are now seeing Hayek’s scenario of choice and competition in currencies actually playing out. Gold seems to be winning this round.

How Congress Should Reform the Fed

The Human Action Podcast

Alex Pollock joins the Human Action Podcast to explain his recent Congressional testimony on the Fed’s growing insolvency and mandate overreach. The Fed now admits to $243 billion in operating losses and nearly $1 trillion in mark-to-market losses, leaving it with negative capital of about $197 billion. Pollock explains how the central bank transformed itself into “the biggest 1980s-style savings and loan in history” — funding short while buying long, and bleeding cash as interest rates rose.

• Read the Congressional Testimony: Mises.org/HAP523a

• Read More from Alex Pollock: Mises.org/HAP523b

As Fed mulls the end of QT, what lessons have been learned?

Published in American Banker.

Expert Quote: "You can argue about whether it's good or not. I think it's okay to do emergency things in times of crisis, but you have to stop doing them when the crisis is over." — Alex Pollock, senior fellow, Mises Institute.

2025 Supporters Summit: Freedom in Money: Hayek’s Competing Currencies, the Fed, Gold, and Crypto

Hosted by the Mises Institute.

Dr. Alex Pollock explains how monopoly money empowers the state to finance deficits and wars, and why legal tender laws should give way to free choice in money. He explores why genuine competitors—likely led by gold—would discipline issuers, noting central banks’ renewed appetite for bullion as an emergent currency competition.

Sponsored by Yousif Almoayyed.

Recorded at the Mises Supporters Summit in Delray Beach, Florida, on October 17, 2025.

The Reign of the Greenback

Published by the Civitas Institute.

The biggest challenge to the dollar's global stature is the American government's unsustainable debt.

In his provocative, erudite yet lively and enjoyable tour of the global monetary system, Our Dollar, Your Problem, Kenneth Rogoff tells us that there are more than 150 currencies in today’s world, but, of course, there is only one top, overwhelmingly dominant currency – the U.S. dollar. The dollar maintains its global dominance even though, for 54 years and counting, it has been and remains a pure paper currency, a “greenback,” which is not convertible at a par value into any precious metal, only another engraved piece of paper or an accounting entry on some bank’s books. Moreover, it suffers from endemic consumer price inflation and recurring asset price inflation.

Nonetheless, “the greenback rules the world today like no currency before it,” Rogoff observes. It surpasses “even the British pound sterling at its peak from the end of the Napoleonic Wars through World War I, when the sun never set on the British Empire,” and when, for 90 percent of those years, pounds were reliably convertible into gold coins.

In 1971, the United States, under President Nixon, defaulted on its Bretton-Woods commitment to redeem dollars held by foreign governments for gold. It thereby echoed the default on the Treasury’s gold bonds under President Roosevelt in the 1930s.

Rogoff gives us this counsel: “Let’s get one thing straight: It is simply not true that all U.S. government debt is “safe”— certainly not in real terms.” Of course, he is right. He continues, “policy studies and journal papers almost ubiquitously came to refer to U.S. government obligations as “safe” debt. This lazy language drives some of us crazy.” Including me. But this lazy language is handy marketing U.S. government debt across the country and around the world, and it really means “safer” relative to other competing currencies.

The anger of European governments at the 1971 U.S. default provided the occasion for then-Secretary of the Treasury John Connally’s memorable riposte, “The dollar is our currency but it’s your problem,” whence the title of this book. The dollar remains a problem for the rest of the world, primarily because it puts them at the mercy of the Federal Reserve and U.S. deficits; however, the dollar is also very useful to them.

Since Connally’s zinger, the dollar has depreciated by 87 percent in purchasing power, based on the Consumer Price Index, and in the same 54 years, the dollar has depreciated by 99 percent against gold. At the Bretton Woods parity of $35 per ounce, $1,000 would buy you more than 28 ounces of gold. Now it buys you little more than one-quarter of one ounce. Notwithstanding its depreciation, the greenback dollar and the accompanying Nixonian world monetary system reign supreme.

Rogoff considers both the historical and the structural reasons for this. Historically, the current system evolved from the state of the world at the end of World War II, a period marked by vast destruction. “The global economic supremacy of the United States after World War II was breathtaking,” he writes, “in 1950, the U.S. economy accounted for an astounding 36% of global GDP.” The financial dominance was even greater.

Along with that went military power. In the days of the dominant pound, the global power of the British Royal Navy went together with the financial power of the Bank of England. Likewise, as Rogoff observes, “Dollar dominance makes it easier to finance the military and, in particular, to fund sudden buildups.” I have long thought that buying U.S. debt by other countries, particularly Japan and Germany, and their taking big losses occasionally on those bonds, should be considered as paying in part for the defense umbrella America provided them. There is a “fundamental connection between military power and currency dominance,” Rogoff concludes. A key point.

Today’s currency dominance of the greenback continues the Bretton Woods dollar's previous dominance. “Thanks to network effects international currency usage is a natural monopoly,” Rogoff says. “Once a currency establishes itself in international transactions, the use of most other currencies falls by the wayside.” With the dollar’s “central role in the pricing of international goods and financial assets”; when “90% of all foreign exchange transactions involve the dollar”; with the U.S. economy still being the largest in the world and representing about 25% of global GDP; and with its having the biggest, deepest and most liquid financial markets, “which remain disproportionately large relative to U.S. income”; the network dominance is logical. But also required is that the Federal Reserve act as central bank to the dollar-using world, not just to the United States. Rogoff helpfully discusses how the Fed does this.

He addresses another essential factor in currency dominance: “Above all, the United States has an established rule of law that is more favorable to creditors than the laws of most countries.” At the same time, in a kind of balance, “For better or for worse, the entire structure of America’s system rewards risk-takers, perhaps because of more generous bankruptcy laws.” This is a striking point and overall is certainly for the better. Taking these institutional advantages together, Rogoff concludes, “It was not just a turn of world history that made the United States banker to the world but a set of legal institutions far better suited to being a banker country.”

But being on top once, even with network effects and institutional advantages, does not guarantee the “evolution of the system as the inevitable and only possible outcome,” Rogoff reflects. “The pound’s glory days as the global currency became a distant memory.” Will the global greenback similarly become a memory, or will it retain its dominance and its matching “exorbitant privilege” in international borrowing?

The book considers the challenges to U.S. currency dominance from the erstwhile Soviet Union, Japan, a united Europe, China, proposals for an international currency (which is not any national currency), and cryptocurrency. All of these deserve the subtle discussions Rogoff provides, but here are a few highlights. Then we will end with the biggest problem: “unsustainable government debt trajectories.”

“We now know that the Soviet Union’s economy was never going to catch up to the United States,” Rogoff says, but reminds us that in the 1961 edition of Nobel Prize-winner Paul Samuelson’s famous college economics textbook, “Samuelson argued that it would likely catch up…between 1984 and 1997.” Instead, in that period, the Soviet Union crumbled economically and collapsed.

Turning to Japan, “Memories fade,” Rogoff writes while reviving the memories, “but from the late 1970s to the early 1990s, there was a widespread view and fear that Japan would eventually overtake the United States.” No longer. Instead, Japan had a giant double bubble and bust in equities and real estate. “The view was that land prices would never go down,” but they fell 80%. Part of the story is that “the United States forced Japan to drastically appreciate the yen in the mid-1980s.” In one of the many personal anecdotes that make this book charming, Rogoff recalls becoming an investor in Japanese stocks in 1985. “Let’s just say that my Japanese stock purchase was a fantastic investment for several years and would have been amazing if I had pulled out in 1989 instead of 1996.”

(Other anecdotes include showing up in a “discount-rack electric-blue polyester suit” for his unsuccessful Rhodes Scholarship interview; feeling “as if I were in a James Bond movie” in an elegant meeting with the premier of China; having the finance minister of Lebanon tell him, “If the finance ministry were to announce tomorrow that Lebanon is going to change its fixed dollar exchange rate, I would be found floating face down in the Beirut River”; having debates with other distinguished economists; playing chess against an AI program; and finding it “futile” to disagree with the Fed chairman when that was “The Maestro.”)

The Euro was designed to be a competitor to the dollar and “is easily the most important alternative to the dollar,” Rogoff writes, but “remains largely a regional currency,” not a global competitor. Its main problem is “the lack of a strong fiscal authority” to match the extent of the currency—one might say, the lack of an Alexander Hamilton. But Rogoff hedges with “just as Europe surprised many economists by pulling off the single currency, it may surprise again.”

The Chinese renminbi “would appear to be a far more potent threat.” Like Japan before it, China had a long period of tremendous economic growth. Then it too inflated a giant real estate bubble – making GDP rise by building empty apartment buildings – and the bubble continues to deflate. Rogoff concludes that China’s long-term growth rate is slowing, that “it still trails in the rule of law, the depth and liquidity of financial markets, and the pricing of goods, [so] it is hard to see a scenario in which China’s currency is widely used in the West.” A final long-term weakness: although “Westerners…have long been stunned by the overall quality of Chinese bureaucrats,” now, "it is quite clear that political loyalty has become a bigger factor than merit.”

In Rogoff’s view, an international currency (going back to the one proposed by J.M. Keynes as an alternative to the Bretton Woods dollar) won’t work in the real world of powerful states, since it will lack the required political power. Cryptocurrencies will not prevail over the dollar for legal transactions, because governments will take over whatever monetary innovations may threaten them. These seem reasonable conclusions.

However, Rogoff sees a sustainable business for cryptocurrencies, perhaps especially for stablecoins, in “becoming the currency of choice for the underground economy.” Stablecoins are principally based on dollars, so they are part of the dollar’s global dominance. But they might serve “as a substitute for hundred-dollar bills [that are] so popular abroad,” and thus threaten a highly profitable business for the Federal Reserve. With interest rates at 4 percent, the approximately $1 trillion of U.S. currency circulating abroad creates profits of about $40 billion a year for the Fed.

We come to what Rogoff deems the “Achilles’ Heel” of the United States and the greenback: “The United States is running deficits at such a prolific rate that it is likely headed for trouble in almost any scenario.”

This reflects a profound change in government finance: “The idea of having governments borrow promiscuously in peacetime is relatively new.” In contrast, “In earlier times, the country bestowed with the dominant currency would use its privileged borrowing status mainly to finance wars,” while “in peacetime it typically ran surpluses.” But now borrowing happens at all times, notably to finance ongoing consumption, as well as wars and investments. This is a huge change. “It was during the twenty-first century,” Rogoff tells us, “that the United States’ fiscal profligacy really picked up a head of steam” as a bipartisan creation, with “much of the sharp rise [coming] from the bulge of old-age support payments.”

One must wonder, as Rogoff does, how long such borrowing can go on. As always, it is until the lenders are unwilling to buy more debt. If or when they are no longer willing, there are only four choices, all unpleasant, as Rogoff clearly explains: explicit default on the debt; cuts in net government expenses (so-called “austerity”); forcing the central bank to print money to buy the debt and so run up inflation; or the “financial repression” of heavy-handed controls—such as forcing banks to buy the government debt, driving down interest rates below the inflation rate to expropriate savers, imposing capital controls, and prohibiting people from owning gold. For U.S. debt, explicit default and cutting enough expenses seem unlikely; that leaves inflation and financial repression, which are implicit defaults.

Will unprecedented debt ultimately drive the U.S. government to pick among these bad alternatives, as it has before? It seems likely to me. If it does, would the greenback dollar nonetheless continue to dominate all the other currencies? I suppose it would, but the exorbitant privilege would have become significantly less exorbitant.

Rogoff’s book gives us plenty to ponder on this and many other monetary issues.

Hudson Institute event: Bad Money: How America Can Solve Perpetual Inflation

Register here.

TUESDAY Nov 4, 5:00 p.m. - 6:00 p.m.

Speakers:

Brendan Brown, Senior Fellow

Alex J. Pollock, Senior Fellow, Mises Institute

Moderator: Harold Furchtgott-Roth, Senior Fellow and Director, Center for the Economics of the Internet

Exit polls after the 2024 elections showed that runaway inflation is deeply unpopular with American voters. But there is no apparent groundswell of popular support for a better monetary regime.

In Bad Money (Palgrave Macmillan, October 2025), Senior Fellow Brendan Brown and late Paris Sorbonne Professor of Economics Philippe Simonnot argue that today’s monetary regime, which relies on constant “low-level” or “transitory” inflation, is unsustainable. These “inflation mongers”—empowered by wars, recessions, and most recently, the COVID-19 pandemic—quietly use inflation to erode debts, prop up assets, and stabilize public finances at the expense of purchasing power, the authors argue. Drawing on history, Brown and Simonnot warn that without a solid monetary anchor, future economic storms will trigger deeper inflation and malinvestment.

At Hudson, Senior Fellows Brendan Brown and Harold Furchtgott-Roth and Mises Institute Senior Fellow Alex Pollock will discuss the book’s findings and how gold-based monetary reform combined with the increased use of modern analytical tools can help end the inflationary spiral.

Interview: Alex Pollock on the Fed and Gold | Part II

Published by The Institutional Risk Analyst.

October 10, 2025 | In this special edition of The Institutional Risk Analyst, we feature Part II of the discussion with Alex Pollock, Senior Fellow at the Mises Institute, that we first published on October 3, 2025. You may read Part I of the interview (“Interview: Alex Pollock on the Fed and Gold”). As we noted in Part I, Alex provides thought and policy leadership on financial issues and the study of financial systems. He was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. We spoke with Alex from his home in Lake Forest, Illinois.

Pollock: Can I give you a great quote on this? An excellent private memorandum on gold viewed in the long term says: “A higher money price of gold is best read as a symptom of a weaker currency. It isn't really the gold going up, it's the dollar or fiat currency in general going down.” That seems to me to be right. And then he says further: “The value of gold lies in being independent from political discretion. Fiat money is a claim on the future discretion of politicians.” Isn't that good?

The IRA: That is a great comment about gold. In the book of Deuteronomy, Moses commands that there be “one measure” of value, something that Fred Feldkamp and I wrote about in Financial Stability: Fraud, Confidence and the Wealth of Nations.” Basically what Moses said was that you have to deal at a mid-market price, no built-in profit from a bid-ask spread. So of course, Jesus of Nazareth points this out in the temple and the money changers, who used a particularly wide bid-ask spread, crucify him. Jesus did not commit any particular religious offenses, he simply outed the money changers in the Temple for violating the laws of Moses and also not paying taxes to Rome on their hidden profits. Forty years later, the Roman legions destroyed the Second Temple down to the last stone to find the hidden gold. In this way, Jesus’ prediction in Matthew 24:2 that the Temple would be utterly destroyed and “not one stone would be left upon another” came true.

Pollock: I didn't know that about Deuteronomy. That's interesting. It's hard to have a dealer market with no spreads, Chris.

The IRA: That depends. In the late 1980s at Bear, Stearns & Co in London, our head trader Paul Murphy made a mid-market price in Canada 9s and the 10-year Treasury every morning to get the customers stirred up. A mid-market price means that if you get lifted by a buyer who has superior knowledge, then you immediately have to adjust. A pure free market. But going back to the earlier point about the Roosevelt era reforms to the Fed and the centralization in Washington, our view is that we need change to make Trump’s reforms meaningful. We’d get rid of the Board of Governors in Washington, make Cleveland a branch of Chicago, convert four branches into new reserve banks in the west, and make all 15 of the Federal Reserve Bank heads presidential appointments with Senate confirmation. We’d take the references to the FOMC out of the statute and let the Fed organize its operations as before 1935.

Pollock: Well, in doing that, you're undoing the fundamental political deal of the Fed which you know very well. The stock of the Federal Reserve is not owned by the government or the Treasury, but by the private member banks. I just read a very good and very knowledgeable book in which the author said, however, that the government owns the Fed. Well, at least the government doesn't own the stock of the Fed. The private banks own 100% of the Fed stock and have since the original Federal Reserve Act.

The IRA: That “ownership” is not enforceable privately because of the very argument you made about Congress and the power to coin money. The federal government retains dominion over the Federal Reserve System no matter who provided the initial capital. To paraphrase Supreme Court Justice Louis Brandeis in the 1925 case Benedict v. Ratner, a transfer of property meant to be security for a debt is "fraudulent in law and void as to creditors" if the transferor retains the right to control, or reserve dominion over, that property. Congress created the Fed and sold stock to the member banks. The fact of private capital didn't prevent Franklin Roosevelt and his New Dealers from stealing the gold that private banks contributed to the original capital of the Fed.

Pollock: That's right. Some people still say that the Fed owns gold. What they mean is the Fed owns something called “gold certificates,” which is simply proof of confiscation by the Treasury, which took their gold and gave them in exchange a paper dollar claim. All the subsequent profit from the devaluation of the dollar against gold in the thirties or anytime goes to the Treasury, zero goes to the Fed. This profit is the origin of the Exchange Stabilization Fund of the Treasury, an exceptionally handy slush fund for the Treasury and the President when they want to do things and don't want to have to get Congressional approval.

The IRA: You mean like bailing out Mexico and banks like Goldman Sachs in the 1980s and 1990s or Argentina today? We used to rail against the use of the ESF to bail out dictators, but nobody in Congress cares today.

Pollock: Yes, like they bailed out Mexico in 1994, etc., as you say.

The IRA: We wuz there, helping Cuauhtémoc Cárdenas run for president in Mexico. So the Fed and the banks could claim that the gold in Fort Knox belongs to them and obviously it does. But when you touch the government, of course, you know that they're going to steal your money. The example of Fannie Mae and Freddie Mac since 2008 is another case in point. Since the 1930s, the Fed and Treasury have essentially been short gold in a sense that policy was directed at avoiding any reference to gold. As you noted, unlike other central banks, the Fed has not been buying gold, even though now since the repeal of the Depression era gold laws they could. If Governor Steven Miran really wants to adjust the dollar lower, shouldn’t the Fed be a buyer of gold for its own account?

Pollock: If you are a seller of paper currency, dollars or any paper currency, then you drive the other side up. All prices are exchange rates, and the price of gold or equally stated, the price of a dollar expressed in ounces of gold, is an exchange rate. Of course, you can move the exchange rate by selling one and buying the other, like the Fed did when massively buying mortgage bonds, more than $2 trillion of them, during QE. The Fed drove up the price of mortgage-backed securities and drove down the yields on mortgage loans financed by simply printing up the money, resulting in much higher home prices.

The IRA: That's right. But if we're Governor Miran and we are concerned that the dollar is overvalued don't we then sell paper and buy gold? Like FDR, we're going to buy gold and essentially devalue the dollar until we get it to where we think it needs to be. Don’t you think it's surprising that nobody in government of either party over the past several decades has even thought about the dollar and gold until President Trump?

Pollock: Yes. The other part of that story is the potential revaluation of the Treasury's gold, the government's gold taken from the members of the Federal Reserve Banks, which is on the books at $42.22 an ounce. The statutory definition of the official price of gold owned by the United States government is “42 and 2/9 dollars per ounce.”

The IRA: The U.S. government's official book value for its gold reserves is $42.2222 per fine troy ounce, a statutory price set by Congress in 1973 that remains constant for accounting purposes. What do you think would be the symbolic impact if we changed the official price?

Pollock: As you say, the official gold price is a matter of law, as established by the Act to Amend the Par Value Modification Act of 1973. You'd have to get Congress to act to change this. If you did get Congressional action, you should just say, as I have recommended, that the official price of gold is “the fair market price of gold as certified by the Secretary of the Treasury” Today that is over $4,000 an ounce. Then you would've a tremendous writeup of the price of gold. The Treasury Exchange Stabilization Fund would get a lot bigger. Like FDR in the 1930s, they could monetize the market value gain by creating new gold certificates, depositing them in the Fed and writing checks on the Fed.

The IRA: I seem to recall that Senator Carter Glass ridiculed FDR in public for this accounting charade. But in a system so dependent upon confidence and inflation, perhaps that is overmuch concern.

Pollock: The gold certificate is a deposit of the Treasury at the Fed, the Fed credits the Treasury's account for the gold certificates, which are already authorized by law. If you change the law to have the Treasury's gold valued at its fair value as opposed to its 1973 value, then Treasury could just write checks and, in effect, borrow the new market value of the gold from the Fed. You could have another nearly $1 trillion of new fiat cash right now. The Eisenhower administration used this gold certificate strategy back in the 1950s, by the way.

The IRA: We don't want to say that too loud. People will get the idea. But the Treasury and the Fed could buy gold for paper. Imagine if you have Kevin Hassett at the Fed. He could start buying gold and force the dollar significantly lower. As you said, it is the dollar that is falling in terms of the gold-dollar exchange rate, not the value of the metal rising.

Pollock: The seizure of gold in 1933 was a profit to the Treasury and an economic loss to the Fed under the Gold Reserve Act of 1934. The Fed had to turn in all its gold and couldn't buy any more. That law was reversed in 1974 in an amendment included in the International Development Association Appropriations Act of 1975 sponsored by Senator Jesse Helms (R-NC). The government stopped the incredibly despotic action of forbidding its citizens from owning gold. I think it's true that the Fed, also from 1974, could have bought gold for itself again. Of course, that would be the opposite, as you point out, of its whole ideology, which is to run the world on fiat paper dollars.

The IRA: Have we not come full circle, Alex? We've gone from the FDR confiscation of gold and all of these laws that were passed to prevent Americans from even thinking about gold. But the Russians and the Chinese particularly have turned this around. The opening of the Shanghai Gold Exchange in 2002 ended the embargo on gold as a reserve asset. Today gold seems to be back in the ascendancy. Was this just bound to happen or was it the US frittering away their franchise with a lot of deficit spending that forced this issue and sanctions and all the rest of it too?

Pollock: I think that is true about deficit spending hurting faith in the dollar. Nor has the United States helped itself in this sense by weaponizing our dominant currency to punish people. It does make the rest of the world less willing to hold dollars as assets and as their central bank foreign currency reserves. Now we see this very interesting move to a new reserve allocation around the world, central banks buying gold. Interesting to think that just a generation ago, the central banks were selling gold.

The IRA: Then-Chancellor of the Exchequer Gordon Brown sold a large portion of the UK's gold reserves between 1999 and 2002, a major financial blunder because it happened at a 20-year low in the gold market, just before the price began a massive, sustained rally.

Pollock: The Bank of England, the Bank of Canada and others all sold gold. A friend of mine in Switzerland told me that he knew officers of the Swiss National Bank, the Swiss Central Bank, when they were forced by the politicians to sell some of the bank’s gold along with the other countries in the nineties. The Swiss literally cried, he said, when they were forced to sell. And they were selling at the bottom, although of course the central banks were in the aggregate making the bottom by selling. That really looks bad in retrospect. Now needless to say, they're buying again. But the central bank buying also seems to be making this top if it is a top, at least making this very high price over $4,000 per ounce– getting close to 100 times the official US price and more than 100 times the old Bretton Woods par of $35.

The IRA: The central banks have been buying in volume. They were indifferent to the price. They just told their people to go out and buy, particularly the Chinese but many other central banks as well.

Pollock: And many want to get out of dollars or at least stop accumulating dollars and accumulate gold instead.

The IRA: It is hard to make a case for holding dollars when we look at the behavior of the Fed and Treasury over the past decade. The Fed bought $7 trillion worth of securities during and after COVID and did not stop buying until 2022, after interest rates had gone up. Fiscal policy was likewise running full tilt. Powell's FOMC provides one of the most egregious examples of procyclical government behavior in modern economic history, perhaps the single best reason for Congress to reform the Fed.

Pollock: The Fed led the housing market into a giant house price bubble with prices rising very rapidly. It was still buying and stoking that bubble in 2021 up to early 2022. Unbelievable. To my mind, an amazing blunder. But part of the mystique of being a central bank is you never admit you made a mistake. It must be that when you enter the secret society of central bankers, you have to pledge never to admit to making a mistake.

The IRA: Well, do you think if they confirm Kevin Hassett as Fed Chairman that he's going to betray Trump like all the other Fed chairman have done?

Pollock: I know Kevin personally from our days together at AEI. He is a very smart and knowledgeable guy. There is, of course, the most famous historical story of betrayal. When Harry Truman was President, he forced out Fed Chairman Thomas McCabe in 1951 to make room for a new appointment. Former Chairman Marriner Eccles stayed on the Board as governor to support McCabe and thwart Truman. Eventually the President got Chairman McCabe to resign. The issue was that the Fed would not commit to keep on buying Treasury bonds to peg the yield at 2.5% to finance the Korean War. While these negotiations were going on, the US Army had just retreated 200 miles south down the Korean peninsula. So you have got to have some sympathy for President Truman. He was losing a war.

The IRA: Reminds us that President Trump’s efforts to remove Chairman Powell are not unique in recent US history.

Pollock: After McCabe’s departure, Truman put in William McChesney Martin, a great Fed chairman and the longest serving one. He was appointed by Truman from the Treasury because it was assumed that Martin would follow the Administration line. Martin didn't. Chairman Martin believed in sound money.

The IRA: And Martin defended the independence of the Temple. Hassett is already starting to make noises about the challenges of inflation. Everyone who is confirmed by the Senate as a Fed governor defends the Temple.

Pollock: There's one point when Martin was now Fed Chairman that he runs into Truman, by the Waldorf Hotel in New York. President Truman looked him in the eye and said one word, “traitor!”

The IRA: Well, given all of that, the Trump administration has articulated a lot of things they would like to change at the Fed that would greatly limit the central bank’s ability to do creative things. How do you think that would change things given the deficit and everything else?

Pollock: It would be very dangerous, of course. My view of Fed “independence," if you talk about absolute independence, it's nonsense. You can't have one piece of the government that becomes an autonomous power running around doing whatever it wants. That's ridiculous. But the Fed should be independent of the President and the Treasury. The reason why this is completely clear was explained by none other than William McChesney Martin: The Treasury is the borrower. The Fed is the lender. You can't have the borrower telling the lender what the lender has to do. I think that's wonderful logic, and so true. Instead, the Fed reports to the Congress and telling the Fed what to do is the responsibility of Congress.

The IRA: Unless your President is a former real estate developer.

Pollock: But all presidents wish to control the Fed. Of course.

The IRA: Of course. Thank you Alex.

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Is the second U.S. housing bubble of this century starting to deflate?

Published in Housing Finance International Journal.

Although it is only one-quarter over, the 21st century has already featured two massive U.S. house price bubbles—a Double Bubble. The first one ended in a terrific bust, needless to say (or is it possible that group memory is already fading?). The second one has made houses widely unaffordable when mortgage interest rates are at normal levels. It may be topping out now, in the third quarter of 2025.

The inflation of the infamous first 21st-century housing bubble ran for over seven years, beginning in 1999. The government and private actors had both pursued riskier mortgage loans, the Fed sought a housing boom to offset the dot-com bust, and together they got a housing bubble. It had doubled average house prices by the time it topped out in 2006. This bubble was deflating by early 2007 and shriveling by late 2007. Average U.S. house prices fell by 27% over a painful period of about six years, finally bottoming in early 2012. This timing is close enough to always make me think of the seven fat years followed by seven lean years foretold by Joseph after Pharaoh’s dream of fat and lean cows in the Book of Genesis.

Neither the American nor the international financial system was as prepared as Joseph for the lean years. The price collapse intertwined with the unraveling of housing finance and set off the “Global Financial Crisis” of 2007–2009, including the panic of 2008 and the failure or distress, and government bailouts of numerous famous firms. These included, for example, the formerly AAA-rated global insurance company, AIG. As Walter Bagehot had correctly written 135 years before, “Every great crisis reveals the excessive speculations of many houses which no one before suspected.”

The emergency reactions of the Federal Reserve to the collapse of the first bubble and later to the Covid panic, as they continued for 14 years (2008–2022), featured nearly zero nominal short-term interest rates, negative real interest rates (that is, interest rates less than the inflation rate), and an entirely unprecedented $2.7 trillion investment in long-term, fixed-rate mortgage securities on the Fed’s own balance sheet. For its entire previous history, the Fed had never owned any mortgage securities. This radical action made the Fed the largest buyer of mortgages and drove the 30-year mortgage lending rate to under 4% and then under 3%, all stoking the second house price bubble. In addition, the Fed invested in $2.4 trillion of long-term Treasury securities to suppress long-term interest rates in general, while it monetized government deficits.

We can place the beginning of the second house price bubble in 2015. By then U.S. house prices had been rising again, but instead of returning to their long-term trend of increasing at a little over the inflation rate, they ran upward far faster than that, with a particular upward spike in 2020–2021.

At that point, 30-year fixed-rate mortgage loans were exceptionally cheap—their rates were pushed down by the Fed to lows of merely 2.7% in 2020 and 2.8% in 2021. The result is that buyers paid higher prices for their houses. For the twelve months ended July 2021, average house prices rose over 19%. Overall, in the inflation of the second bubble between 2015 and 2025, average house prices again doubled.

In March 2022, the Fed very belatedly stopped expanding its mortgage portfolio and started to increase short-term interest rates. Mortgage interest rates rose to over 4% and then over 5% in May of that year. In other words, the rates were returning to historically normal levels, but the impact of their rise on monthly payments compared to a 3% mortgage was very large.

Many people, myself included, thought average house prices would then necessarily fall. They did go down about 5% from an interim peak in June 2022 in the second half of that year, but then most surprisingly started back up and reached new highs, in spite of the interest rate on mortgages rising to 6% to 7% or more. The 2025 highs were almost 80% over the peak of the first bubble and were 7% over what had looked like the top in June 2022.

But now it appears that the market really is putting in the top of the long second U.S. house price bubble of this century. The AEI Housing Center reports average house prices increased only 1.3% for the year ending in August 2025, less than the general inflation rate, and forecasts 0% average house price growth for the year 2025 and –1% for 2026.

The financial commentary Wolf Street reports that for July 2025, house prices fell on a year-over-year basis in 20 of the 33 U.S. metropolitan areas it tracks. It adds that prices of mid-tier houses have declined more than 10% from their 2022 peaks in twelve U.S. cities, with the five biggest falls being in Oakland, California: –23%; Austin, Texas: –23%; New Orleans, Louisiana: –18%; Cape Coral, Florida: –18%; and San Francisco, California: –16%.

Even after these reductions, house prices are still at highly inflated levels, so the price deflation should continue. Correspondingly, inventories of houses offered for sale are rising rapidly while the volume of house sales is low, and home builders are having to offer significant price concessions to sell new houses.

If the second bubble is finally starting to deflate, how far can prices fall and for how long? After ten fat years, how many lean years could there be this time, even if the U.S. has avoided the egregious credit mistakes of the first bubble? Will the Federal Reserve be tempted to get back into expanding its mortgage portfolio? These are questions to which we don’t know the answer.

But we know for certain that highly leveraged real estate combined with extreme movements in central bank money printing create remarkable adventures in house prices and housing finance.

Comments on the implementation of the GENIUS Act

October 3, 2025

Department of the Treasury
Office of the General Counsel
Washington, DC

Re.: GENIUS Act Implementation Comments

Dear Sirs and Mesdames:

We respectfully submit the following comments on implementation of the GENIUS Act.  Our comments in particular concern the serious financial stability risks introduced by the act's including uninsured deposits in domestic and foreign banks to the definition of allowable reserves for payment stablecoins. This distinctly higher risk could be reduced by appropriate regulations, although we do not believe it can be eliminated given the language of the act. We suggest that significant regulatory focus on this issue is required.

Specifically, we are greatly concerned with the provisions of the GENIUS Act Section 4(a)(1)(A)(ii).

Uninsured deposits in domestic and foreign banks are an entirely different class of risk than are short-term Treasury bills and other government-guaranteed investments.  They introduce much more individual firm and systemic risk than do Treasury bills. We have seen no public discussion which addresses these risks.

In general, discussions of the GENIUS Act claim that it creates virtually risk-free backing for stablecoins.  Because it includes uninsured deposits, however, such claims are incorrect. In fact, the Act ties stablecoin risk to banking risk, which the financial system has unfortunately so often experienced.  More than 3,000 insured depositories failed over the last half-century.  Many more would have failed except for federal support and bailouts of various kinds, including those of 2008-09, 2020 and 2023.

Banking risk has already demonstrated its power to become stablecoin solvency risk.  In 2023, "Circle's USD Coin lost its dollar peg and fell to a record low [as] the company revealed it has nearly 8% of its $40 billion in reserves tied up at the collapsed lender Silicon Valley Bank.  USDC is designed to trade at $1, but it fell below 87 cents."  ["Stablecoin USDC breaks dollar peg after firm reveals it has $3.3 billion in SVP exposure," CNBC cnbc.com March 11, 2023]  The stablecoin was only saved by a federal bailout of wealthy uninsured depositors like Circle.  At the same time, financial regulators also feared  the risk of runs by uninsured depositors on many banks.  

This same  problem could clearly happen again under the GENIUS Act.  Although it has been virtually never mentioned in the GENIUS Act announcements and discussion, the act allows uninsured, unsecured bank deposits in domestic and foreign banks as an investment for stablecoin reserves. [ Section 4(a)(1)(A)(ii). P.L. 119-27 (2025)]  These deposits are inherently risky.  Merely because money is deposited in a federally insured financial institution does not mean that all or even most of the money is insured, of course. For large deposits, it is rather the opposite. Federal law imposes a $250,000 ceiling amount for insured deposits in domestic banks.  Uninsured deposits are at risk and their holders become general creditors of the failed estate in a bank receivership. 

If the bank or banks where a stablecoin issuer keeps deposits were to fail, amounts above the insured ceiling would suffer losses unless the government bailed them out. In the Silicon Valley bank failure, Circle kept $3.3 billion of its reserves with Silicon Valley Bank, all but $250,000 of which would have had large losses imposed without the bailout. 

Moreover, the GENIUS Act increases risk by permitting reserves to be held in uninsured deposits at foreign banks if they are correspondents of U.S. banks, potentially including, for example, banks in the Bahamas or Cyprus or the British Virgin Islands.  We have seen no public discussion of the role of foreign bank risk in the GENIUS Act.

The role of uninsured deposits in the GENIUS Act sharply contrasts with the administration's focus on how stablecoin reserves could be short-term Treasury bills or their equivalents. Many view the act as a way of ensuring a continued strong market for U.S. Treasury debt, which is essential to maintaining the dollar as the world's reserve currency, at a time when foreign governments seem to be paring back their holdings of Treasury debt.[M. Mutuma, "Could Stablecoins Dominate Treasuries? GENIUS Act Sets the Stage, Coincentral coincentral.com (May 27, 2025); "Foreigners Dump U.S. Treasuries. Here's Who Did the Most Selling," Barron's https://wwwbarrons.com (March 21, 2025)] The White House statement on the act stresses that the act provides for "strong reserves'" and will, "generate increased demand for U.S. debt," to help ensure "the continued global dominance of the U.S. dollar as the world's reserve currency." [Fact Sheet: President Donald J. Trump Signs GENIUS Act into Law www.whitehouse.gov (July 18, 2025]) Expanding the forms in which reserves can be held from short-term U.S. Treasuries to uninsured deposits in domestic and foreign banks makes this a quite different matter. Because of these uninsured deposits, we believe the law does not require strong reserves, may not greatly increase demand for U.S. debt, and if there is a banking crash, may cause a linked crypto crash and perhaps a taxpayer bailout. 

The GENIUS Act not only permits stablecoin reserves to be held as uninsured deposits but has other provisions that we believe will make it more likely that reserves will be held in that form rather than in the form of Treasury debt, resulting in less demand for Treasury bills than hoped. The law permits a subsidiary of an insured financial institution to issue stablecoins. [ Section 2(23), P.L. 119-27 (2025)]  No provision of law would prevent the subsidiary from holding its reserves in uninsured deposits at its parent bank. This creates a very favorable business model for banks. A bank subsidiary could issue stablecoins, on which the GENIUS Act prohibits paying interest [Section 4(a)(11), P.L. 119-27 (2025)] , and charge a fee for such issuance. The subsidiary could then deposit these funds as reserves in its parent bank in a non-interest- bearing deposit. The bank could then use these funds, which are interest-free money to the bank, to make loans or buy securities of any kind allowed to banks--for making commercial real estate loans, for example. This business model would in almost all circumstances appear to the bank more profitable than merely investing the proceeds in short-term U.S. Treasury bills.  

JPMorgan CEO Jamie Dimon has stated that JP Morgan would be involved in stablecoins. [H. Son, "Jamie Dimon says JP Morgan Chase will get involved in stablecoins as fintech threat looms," cnbc.com (July 15, 2025); "Jamie Dimon Now Says He's a 'Believer in Stablecoin'- And JP Morgan Chase's New Partnership Could Change Everything, " finance.yahoo.com  (Aug.10, 2025)] Citigroup and Bank of America are working actively on issuing stablecoins. ["Some big US banks plan to launch stablecoins expecting crypto-friendly regulations," Reuters, finance.yahoo.com (July16, 2025)]  By issuing stablecoins, banks will have deposits for which they pay no interest to fund their general business of any kind or risk, not just holdings of Treasury bills. 

An even more striking risk may come from crypto entrepreneurs who could set up banks to issue stablecoins though the banks' subsidiaries. We believe that the business model outlined above may be very compelling to stablecoin issuers. This might become analogous to the 1980s when real estate developers were permitted by regulators to control savings and loan associations to fund their developments and other real estate activities, contributing to the failure of the savings and loans.  By permitting reserves to be held in uninsured deposits, we believe the GENIUS Act provides stablecoin issuers with a strong incentive to set up banks to use those reserves to fund riskier activities, rather than choosing to invest in low-yielding short-term Treasury securities.   

Placing these reserves in uninsured bank deposits exposes stablecoin holders to the risks of domestic and foreign bank failures and the taxpayers to the risk of supporting a stablecoin bailout along with a bank bailout. 

Bank regulators might lessen the risk of intertwined stablecoin issuer-bank failures by imposing rigorous regulatory standards on the holding of uninsured deposits.  These might include strict limits on the holdings of uninsured deposits in individual banks and banks with common ownership.  It should in our opinion include the requirement of holding standard risk-based capital against the undoubted risk involved with such deposits.  While Treasury bills have a zero risk-based capital requirement under existing U.S. regulation, uninsured deposits do not--especially deposits in foreign banks.  For domestic insured banks, the general rule is a capital requirement of 1.6% (20% risk weighting X 8%). For foreign banks, the capital requirements range from 1.6% to 12%, depending on the risk of the bank and the country involved.  We recommend that these same capital requirements be applied to all uninsured deposits held by payment stablecoin issuers.

In summary, we believe that the inclusion of uninsured deposits in domestic and foreign banks in the GENIUS Act causes serious individual firm and systemic risk issues, which now require a strong regulatory focus.

Thank you for the opportunity to submit these comments.  

Yours truly,

Alex J. Pollock
Senior Fellow, Mises Institute
Formerly Principal Deputy Director, Office of Financial Research
alexjpollock43@gmail.com

Howard B. Adler
Attorney
Formerly Deputy Assistant Treasury Secretary for FSOC
hadler1951@gmail.com