When the Bond Vigilantes Sleep · A Five-Part Analysis
Part 4 of 5
The Central Banker's Independence
Central bank independence is the last institutional guardrail between fiscal dominance and sovereign crisis. When governments capture their central banks, the Extend & Pretend road becomes a one-way street — and the bond vigilantes lose their only alarm.
CBI Captures Since 2010
14
countries where government overrode central bank
The Pattern
100%
of CBI captures preceded by liberty decline
Yield Impact
+8.4pp
avg yield increase within 3 years of CBI capture
US Fed Independence
At Risk
First explicit threats since Nixon, 1971
Graphic 01
The Guardrail Map
Institutional independence exists on a spectrum. This map plots 25 countries by their estimated central bank independence against their current liberty score — revealing four distinct regimes of monetary governance.
Source: CBI estimated from Sovereign Credit Database governance topology scores, cross-referenced with Garriga (2016) CBI Index methodology. 25 countries, 2025 data.
Graphic 02
The Liberty–Independence Nexus
Central bank independence does not exist in a vacuum — it is a downstream product of political liberty. When liberty erodes, CBI erodes with a 2–4 year lag. The relationship is not linear: it has a threshold below which independence collapses.
Source: Sovereign Credit Database. CBI proxy = f(liberty, institutional stability). Threshold analysis based on 91 countries.
Graphic 03
The Capture Sequence
Central bank capture follows a predictable six-step sequence. Turkey, Hungary, Argentina, Venezuela — the playbook is identical. Each step makes the next easier and the reversal harder.
Source: Comparative analysis of 14 central bank capture episodes, 1970–2025.
Graphic 04
Fiscal Dominance Index
When government debt exceeds the central bank's ability to manage it without monetization, fiscal dominance has arrived. The index measures the ratio of government financing needs to the central bank's conventional toolkit.
Source: Sovereign Credit Database. Fiscal Dominance Index = (Debt/GDP × 0.4) + (100 − Liberty) × 0.3 + (Chaos × 0.3). Normalized 0–100.
Graphic 05
The Yield Suppression Gap
When central banks suppress yields below fair value, the gap between implied and actual yields is the cost of independence — paid by savers. The wider the gap, the more fiscal dominance has replaced market discipline.
Source: Sovereign Credit Database. Implied yield = 15 − 0.12 × Liberty. Gap = implied − actual. Positive gap = yield suppression.
Graphic 06
Independence Under Siege
A timeline of central bank independence erosion across 8 key countries. Each dot marks a measurable attack on institutional autonomy — from political pressure through direct capture.
Source: Historical analysis of institutional independence events, 2000–2025.
Graphic 07
Three Autopsies
Turkey, Venezuela, and Argentina — three countries where central bank capture has been completed. The post-mortem reveals the same cause of death: fiscal dominance converted institutional independence into a fiction.
Source: Sovereign Credit Database. Full country trajectories with CBI events annotated.
Graphic 08
US Guardrail Status: Real-Time Assessment
Where does the United States stand on the capture sequence? A six-indicator dashboard tracking the institutional health of the Federal Reserve — with historical comparison to countries at the same stage.
⚠️ METHODOLOGY NOTE: The PTI score of L≈48 reflects the author's real-time institutional assessment incorporating executive action pace through early 2026. Published indices score the US higher: Freedom House 83/100 (2024 report), V-Dem LDI ≈0.65–0.72 (scaled: ~65–72). The divergence reflects the PTI's faster update cycle, weighting toward institutional constraint erosion, and incorporation of events post-dating published index coverage. All claims should be evaluated under both the author's PTI and established indices.
Source: Sovereign Credit Database + institutional analysis. Indicators derived from liberty trajectory, debt dynamics, political rhetoric, and institutional stress signals.
Continued in Part 5: "The American Exception"
The US has something no other eroding democracy has ever possessed: the world's reserve currency. Part 5 quantifies this "exorbitant privilege" at $2.2 trillion annually — and models what happens when it breaks.