Authors Bill Bergman and Larry Feltes argue that declining public confidence in government and financial institutions is putting the U.S. economy in peril — and a crisis could come faster than you think.
Trust used to be America’s real currency. Now, according to veteran insiders Bill Bergman and Larry Feltes, we’re almost broke.
In their new book, Avoid Fiscal & Economic Disaster with Ethics, Economics, and Excellence, Bergman and Feltes argue that the nation’s stability isn’t just about debt, deficits, or inflation — though all of these matter — it’s about the public losing faith in the institutions that are supposed to safeguard us. Bergman, a former Federal Reserve Bank of Chicago official (1990–2004), is an authority on banking, regulation, and fiscal policy, while Feltes is a retired Air Force Lieutenant Colonel and experienced government financial manager.
Blending historical lessons with real-world experience, they deliver a book that’s accessible to kids yet important for adults.
From the Fed’s unprecedented losses and spiraling military spending to stubborn inflation and questionable stablecoins, Bergman and Feltes warn that America isn’t just economically fragile: it’s socially unstable. They spoke to the Institute for New Economic Thinking about where they see peril, and cause for hope.
Lynn Parramore: Your book blends history, ethics, and a roadmap for tackling the nation’s biggest threats. What inspired it, and what’s the core idea behind it?
Larry Feltes: It’s closely tied to military values, specifically Air Force values: integrity, service before self, and excellence in all we do. We tweaked them slightly — it’s not just integrity, but ethics more broadly, including secular and religious ethics — and expanded “service before self” to include economic responsibility.
From market failure to government failure, this framework sets up the corrections and recommendations we propose for management excellence — the “excellence” part of the book.
LP: You focus the social and economic costs of declining trust in America. What signs concern you most? Where’s the damage most visible?
LF: Consent of the governed is central to democracy — the people are sovereign. But the financial condition of the United States is so poor that most citizens don’t know what’s going on. When people don’t know, trust erodes.
And look at Minneapolis today. A lack of trust in government there could spark broader civil unrest. That’s a clear warning sign.
Bill Bergman: Minneapolis is one example, but the issue is broader. The loss of trust isn’t just in government—it’s in major institutions. Many institutions have become entangled with government in ways the average citizen doesn’t trust. The government has become a tool for self-interest — susceptible to manipulation by special interest groups. Government, which should serve the common good, instead serves these groups. That’s why citizens have lost confidence in the quality of government and Congress—the way favors are handed to special interests at the expense of the public.
This includes areas like banking, which the Institute for New Economic Thinking has studied.
LP: Inflation is hurting Americans’ ability to afford basics. You’ve called it a trust issue as well as an economic one. How does ongoing inflation affect confidence in government and the Fed?
BB: Inflation is about the value of money, and through the Constitution, we’ve given Congress the power to coin money and regulate the value thereof. Congress, through that authority, passed a law in 1977 called the Federal Reserve Reform Act. That was the first time the Congress directed the Federal Reserve to pursue stable prices in monetary policy.
Okay, how stable have prices been since 1977?
LP: According to that MacDonald’s menu from 1977 in your book, where a burger was less than a buck, not very stable!
BB: Exactly. That’s a simple explanation of a bigger issue: the Consumer Price Index (CPI) has quintupled since that law. Arguably, that’s one reason to be cynical. If the government passes laws that don’t seem to mean what they say, we have an issue with trust. Inflation is part of that.
LP: When people can’t afford rent, seeing things like massive hikes in military spending can further erode trust — people start asking, wait, how does this improve my quality of life? You’ve referenced President Eisenhower’s warning about unchecked military spending diverting resources from citizens’ needs. How well are policymakers today balancing national security with social and economic priorities?
LF: It’s the old guns and butter — the balance between foreign affairs and national security and welfare programs. Quite frankly, since LBJ, we’ve been trying to do both and that has led to deficits. With regard to deficits and the public debt in general, there’s just a few ways that you can handle in. One, you can increase revenue (which is difficult), expanding the economy. Two, you can cut programs, which is almost impossible, though they’re doing some of that today. Or three, you can pass it on to the grandkids, which we’re doing in large numbers.
With the size of our debt, I think the alternative they will choose is the most harmful one, and that’s to inflate the currency — just inflate the debt away if they can. So we’re going to see a lot of inflation unless there’s a rapid turnaround. I don’t see President Trump being very much concerned with the public debt.
LP: We had a trillion-dollar Pentagon budget in 2025, and Trump wants to raise it to $1.5 trillion. Are taxpayers really getting their money’s worth for that kind of spending?
LF: Absolutely not. Since the end of World War II, we put $22 trillion into Europe in military spending. What was the return? The Europeans have become free riders in defense. They built welfare states in most of those nations – they’ve got a better infrastructure, better trains and interstates than we have. We’ve been trying to do both defense and a welfare state, and I think we’re at the breaking point.
That doesn’t mean that the United States has to withdraw from world affairs – there are real emerging threats. But I don’t know where President Trump gets the money for a $1.5 trillion military budget unless he passes it on to the grandkids, and we feel that that’s morally objectionable.
LP: And do we get real improvements in our weapons, protection, or safety against threats? Are we better off?
BB: Who is “we” is a good question, and that pertains to military spending as well as government spending generally. The money comes from taxes, but politicians don’t necessarily want to tax as much as they spend because they won’t be in office very long, so they borrow the money or they inflate the value of money away. Now, there are some people who make money off things like defense budgets, but our general wellbeing can also be threatened by those people.
LP: You talk about regulation and cite Paul Douglas and George Stigler’s warning that regulation can be captured by the industries it’s meant to control. In terms of emerging industries like crypto and AI — do you see those sectors proving their point about how regulation can be hijacked?
BB: Yes, it’s the capture theory of regulation. Whenever there’s power, people want to control it, often for their own self-interest. In theory, government provides solutions for market failures by regulating industries or businesses. But once it does, who has the most incentive to influence the regulation? The businesses being regulated. Stigler warned that, over time, businesses tend to capture the regulator, so regulation ends up benefiting the businesses, not consumers or taxpayers. Paul Douglas, 20 years before Stigler, made this point very clearly.
Fast forward to today: Is there money in AI? In stablecoins and the future development of money systems? You bet there is. The existing banking system has a vested interest in controlling the evolution of money. What we’re seeing now are new entrants who are more skeptical of government authority over money, which is why they’re developing alternatives to the current system. That said, they will eventually be part of whatever gets regulated. So yes, there’s heated competition over the regulation of money and AI. It’s important for citizens to stay watchful as government exercises authority in these areas.
LP: And yet it’s hard for the average person –or even lawmakers — to understand exactly what these industries are doing or how they work. How do you see that challenge? And do you see stablecoins as safe, as stable as their name would have us believe?
BB: As soon as something is called “stable,” you should be skeptical — especially with stablecoins, how they’re developed, and who regulates them. It seems government is regulating them to back stablecoins with what it deems safe. Is that necessarily trustworthy? History of banking suggests it’s not.
In 1907 we had a massive banking crisis, in part because of information asymmetry. People that had money in banks didn’t know how good the bank was, and they ended up having a run on the banks. We fixed that problem, in theory, by creating the Federal Reserve system in 1913. And yet 20 years later, we got the worst banking panic in U.S. history, despite or perhaps even because of this solution for banking systems.
Government’s efforts to make things stable can actually make things unstable through moral hazard. Your work at INET with economist Ed Kane is instructive on this score.
LP: Jerome Powell recently said the economy is stable, but you point to hidden risks. Should the public feel confident in Powell’s claim?
LF: I think we’re on a precipice. Hemingway once said you go broke gradually — and then suddenly.
Our system has been known to go into crisis periodically. Hopefully, we don’t see something as severe as the Great Depression again. But there are some risks that should be a concern. There’s a flight to safety now in metals with gold and silver. I think silver went up 16% just this year alone. And gold is at an all-time high. What’s going on there?
Our status as a reserve currency may be in trouble. There are things going on internationally that are very concerning — with Canada going to China now for a relationship, and Europe giving us trouble in trade. We’re in trouble as a nation.
Going back to Econ 101 and the idea of rational economic man in the marketplace — there should be many buyers and sellers, with access to prices and quality. I don’t think we have that. We’ve strayed from the fundamentals of a market economy and we’re seeing political behavior replacing economic behavior.
LP: What do you think of a Fed leadership change, like Kevin Warsh, potentially?
BB. This is just one person, and one person doesn’t a system make. The system that got us here is still in place. One indicator worth noting is that people still think of U.S. Treasuries as the gold standard of the markets and a proxy for risk-free rates. But there’s also a market for credit default swaps on government debt. If you look at a list of 30 major countries, where do you think the U.S. ranks in terms of the quality of its sovereign debt? It has fallen below the top — it’s roughly 18th out of 30 right now.
(LF:) They used to derisively call Portugal, Italy, Greece, and Spain the ‘PIGS’ countries—now the U.S. is in the same ballpark.
BB: The Institute for Strategic Studies publishes statistics comparing nations in quality of life as well as military posture and other indicators. And the United States, be it longevity or infant mortality…we’re just not that shining city on a hill anymore.
As for the new chairman of the Federal Reserve, he’s going to be riding a bucking bronco—managing the debt. That’s going to drive much of his thinking: finding resources to finance the debt and, hopefully, working with the administration on fiscal policy. I actually think fiscal policy will matter more in America than monetary policy.
There was a New York Times article with the fun title “Meet the New Boss.” Sorry, it’s not Kevin Warsh. It’s the federal debt. That’s the incentive the Fed will face, and it’s part of the argument I make about the Federal Reserve “independence.”
LP: There’s certainly been a lot of talk about that lately.
BB: Oh yes. And Donald Trump is not the biggest threat to Fed independence. The biggest threat is the financial condition of the federal government—and the Fed itself.
Not too many people in the United States are aware, as they should be, of the financial condition of the Federal Reserve. The Fed has been losing hundreds of billions of dollars, something it never used to do. It used to give money to the government. But in recent years, for a variety of reasons, the Fed has been losing unprecedented amounts of money. And in turn, the federal government’s own financial condition is very dark.
The U.S. government has a balance sheet. It has about $6 trillion in assets and about $46 trillion in liabilities, which are arguably understated. But 6 minus 46 gives you a big negative number. However, they introduced the balance sheet with the following comforting language: “There are, however, other significant resources available to the government beyond the assets presented in these balance sheets. They include the government’s, quote, sovereign powers to tax and to set monetary policy.”
In other words, we don’t have to worry about our government because it can take our money away, or it can inflate the value of the dollar away. I’m afraid that’s how our government tends to think the system, and that we’re facing these pressures to inflate the value of the money away that we need to address.
LP: How concerned are you about another financial crisis?
LF: In my estimation, it’s coming, and it will be interesting to see which way it goes. The Trump administration claims to have attracted something like $18 trillion in foreign investment to the United States, and theoretically that should help stimulate economic growth. If the economy grows, that’s one way to retire the debt. But I don’t see a systemic or congenital willingness on the part of Congress to do that, and if you add in the financial conditions of the states and many of our large cities, I don’t know. I sense they’re going to turn to inflating the currency again.
BB: If you think of the financial crisis we had in 2008–09, the same actors, the same systems, the same regulatory forces, and the same institutions that got us into that mess are still with us today. And I’m afraid the backstop—the fundamental strength of the government that led to the moral hazard behind that crisis—is now under increasing stress, given the financial condition of the Federal Reserve and the federal government. So are we on a precipice? I’m afraid, like Larry, that we are.
LP: What are the biggest threats to the ordinary person in this time of social and economic stress?
LF: It’s across the spectrum. Go to the grocery store, prices are higher. Go to the automobile store, prices are higher. People are deferring marriage and childbearing. They can’t get into housing. There’s a housing crisis at all levels of the economy.
Why should it take two people in the workplace to sustain a family? That gets right to the heart of quality of life and the kind of children we’re bringing into the world and the kind of supervision and loving care that they get from parents. Most of that has fallen on deaf ears.
LP: Can you talk about some of recommendations for dealing with the problems you’ve identified?
BB: Going back to Ed Kane, he had an idea for developing military-style boot camps for financial regulators, based on his respect for the ethical and leadership training provided in the U.S. military. He suggested applying that model to the regulatory system to help instill a stronger esprit de corps and encourage public-spirited regulation that is not captured by banks.
LF: I think we need a new budget architecture. I earned my MPA in 1975 and wrote my thesis at the Command and Staff College on the Congressional Budget and Impoundment Control Act of 1974. That was a mistake—a grand mistake—in the history of federal finances, and it needs to be reformed.
One idea is to rename the State of the Union—maybe to the Fiscal and Economic State of the Union. Our President doesn’t talk about money, and that’s not a true State of the Union. If the President can’t do it, have the Secretary of the Treasury do it. At a Rotary or PTA meeting, the presider turns it over to the treasurer to explain the fiscal and economic situation.
BB: This proposal is low-hanging fruit and a good one. We recommend that President Trump, in the next State of the Union address, directly reference the financial report of the U.S. government. Every year, they give a State of the Union full of flowery talk, but they never address the finances of the government. We never get a review of that financial report. That’s exactly what the CEO of a company does in the annual letter to shareholders.
Why doesn’t the federal government give the Executive Office a role in this? It’s shameful that our government doesn’t do it in the State of the Union.
LF: I’d add that it’s axiomatic that the two hardest things to do in government are, locally, to move the city graveyard, and nationally, to close an Air Force base, Army or Marine Corps installation, a Navy yard, or stop a government weapons contract.
Some of these weapons systems stay in production for 30 or 40 years, with thousands of jobs at stake. I know this from experience—I was assistant controller of the Defense Personnel Support Center. Back in the ’70s, the Department of Defense bought more ketchup than McDonald’s. You’d think a commodity like ketchup could be handled by a GS-11 or -12, or a young captain. But the choice of vendor—Heinz or Campbell’s—meant 15,000 jobs in Pennsylvania or New Jersey. And where was the contract managed? Not in the Department of Contract Management, but in the Senate Armed Services Committee. What are they doing buying ketchup while the world faces much bigger problems? Well, Kerry, Secretary of State, married into the Heinz family—and that’s where the contract went. Senators spending time on ketchup miss the bigger issues, like the F-35 program or international and space matters.
BB: This example underlies two of our recommendations. One is the development of a fiscal responsibility commission, which would take the need for a fundamental new budget process out of Congress and place it in an independent commission, giving them a yes-or-no, all-or-nothing vote to develop a new system. The other is our balanced budget amendment idea.
We have another recommendation I can’t resist sharing: legal simplification. Over time, the success and stability of the United States have led to an enormous accumulation of laws and regulations, which are very costly. We believe the U.S. legal and regulatory system could be radically simplified, because there is a certain special-interest group that benefits greatly from complicated laws: lawyers.
LF: And the bureaucracy. Successive Secretaries of Defense have described the Department of Defense—which should be one of the most agile, state-of-the-art organizations in government—as suffering from bureaucratic sclerosis. When we develop a new weapons system or something more responsive to a threat than our current inventory, it can take 20 or 30 years to get it to the forces.
China is much better at this. Yes, they’re authoritarian, but they can field a weapons system far more rapidly than we can, which means they may have more state-of-the-art technology than we do.
BB: That sclerosis metaphor was used by the public choice economist Mancur Olson, who in The Rise and Decline of Nations and elsewhere talked about the growth of lawyers as a symptom. Individual lawyers aren’t inherently bad, but when you see lots of lawyers and lots of laws, they can be symptoms of deeper problems that aren’t healthy for the system.
We could be much more efficient with a simpler, values-driven approach. We emphasize ethics as a way to improve trust in America, and also as an alternative to politically driven, command-and-control laws. That’s one way to move things in a better direction.
Larry and I are very fond of the principles at our nation’s founding, including popular sovereignty. We’re concerned that the loss of trust in government is a symptom of the fact that people realize government isn’t working for them—it’s working for itself and the powerful special-interest groups, of both Republican and Democratic stripes. We need more public spirit and less self-interested government administration. We try to be hopeful—that’s why we wrote the book.
