Has Congress Just Solved America’s Debt Problem (With Crypto)?
Uncle Sam always has an ulterior motive.
And you can bet the motive benefits Sam’s pocketbook at the expense of everyone else.
You might recall—or maybe you don’t, and that’s no problem—that Sam’s elected minions, Congress, passed the GENIUS Act over the summer. After years of ignoring or bashing cryptocurrencies, the boys and girls who couldn’t find gainful employment in the real economy changed their tune and suddenly decided, “Crypto good!”
As part of the inner workings of the act, Congress ruled that stablecoins must be backed 1:1 with either cash (dollar bills in the bank) or US Treasury debt, which in this case would be short-term debt such a T-bills that mature in three months or less.
And for 118% of American society, that fact is entirely pointless and useless, and probably bores you and you just remembered you need to stop reading this right now and go bathe the cat…
I get it.
But this is actually kind of important.
It potentially allows the US to surreptitiously erase Uncle Sam’s egregious debts.
First… just to bring you up to speed in case you’re not versed in crypto-talk.
- Stablecoin: A cryptocurrency built to tightly track an underlying asset’s price movement. Primarily that’s US dollars, but stables also exist that shadow gold, silver, the euro, the yen, the pound, the Swiss franc, etc.
- If you own 1 US Dollar Coin (USDC) or US Dollar Token (USDT), two popular stablecoins, you effectively own the same thing that’s in your wallet and your bank account. They’re interchangeable. I can send $1 to my crypto account and get 1 USDC, and then I can send 1 USDC to my bank account and it arrives as $1.
Dictionary time is now complete.
So, Congress has legislated that any stablecoin tracking the greenback must own cash or Treasuries… which is where the ulterior motive emerges.
And to get to what that motive might be, let me remind you that America has some $37 trillion in debt, and that the deficit under the fiscally responsible GOP is set to top $2 trillion by the time fiscal-year 2025 ends later this month, the highest overspend in US history outside of the pandemic years of 2020 and 2021.
What that says: America has sunk in the deepest end of the dookie pool.
And the only way to breathe again at this point is to find a way to drain the pool without actually draining the pool, because, well, there is no drain.
I’ve been saying for a few years now that I suspect DC will find a way to call upon crypto (and gold) to help reset the US monetary system. A lot of people have scoffed at that because they don’t really understand blockchain or money on the blockchain.
Now, what I will say next is where a lot of people will roll their eyes… and I absolutely understand why. All I ask is that you read it, if only to keep the idea in the back of your mind, just in case.
At the recent Eastern Economic Forum, a Russian bureaucrat warned attendees that America is seeking to “rewrite the rules” of the cryptocurrency and gold markets to offload or devalue their debt at the expense of global stakeholders.
Granted, this is from Russia, and as such it could very well be propaganda.
Then again… this matches America’s actions in the 1930s and 1970s.
Amid a dollar rout in the 1930s, FDR confiscated gold and revalued it to $35 per ounce from $20.67. The knock-on effect devalued dollars and dollar-denominated debt held by foreign investors.
Then came Nixon in 1971. Facing another dollar crisis due to America’s wild spending on the Vietnam War and massive social programs at home, he suspended the dollar’s convertibility into gold. The knock-on effect devalued the dollar and dollar-denominated debt held by foreign investors, including central banks.
So, America has a storied history when it comes to screwing the world to save the dollar from self-inflicted destruction.
Why would America not do that again?
Of course it would. Without hesitation.
Which quickly brings us back to what might be America’s ulterior motive with the GENIUS Act.
The Russian bureaucrat, an advisor to Vladimir Putin, pointed specifically to stablecoins as the tool the US will use this time to reset the US monetary system. The path: Push global adoption of Treasury-backed stablecoins, then devalue the dollar to reset the system. Convenient that the GENIUS Act legislates that Treasuries must be used to back stablecoins.
“OK, El Jefe, but explain it to me like I’m your grandma… How would this work to devalue the dollar and reset America’s debt?”
Here’s how it would work:
- Make stablecoins a global standard for holding dollar-denominated debt, which necessarily increases demand for the underlying Treasuries held as reserves backing the stablecoins. The upshot: The US sells more debt to global users indirectly, because people all over Africa, Asia, and Latin America hold stablecoins to preserve wealth in economies with weak currencies. (Note: the two largest USD stables, US Dollar Token and US Dollar Coin, are doing annual transactional volume already that roughly equals the size of the US economy.)
- When stablecoin buyers buy stablecoins, the stablecoin issuer buys Treasuries to back those new stablecoins. As such, Uncle Sam pulls in fresh capital—not because buyers explicitly want US debt, but because buyers are snapping up stablecoins that must own US debt by law.
- In essence, through stablecoins America doesn’t have to sell debt directly to foreign investors/central banks. Average Joes and Josephinas from all over the world are unknowing investors in US debt.
- The debt sold is generally short-term debt, which tends to be the cheapest debt, thus helping Sammy with those egregiously large interest payments he has to make.
Through these steps, Uncle Sam is effectively offloading dollar risk once again onto the world, this time by way of cryptocurrency stablecoins and the blockchain.
To further the American mission, US financial bureaucrats would look to devalue the dollar through various means including flat-out printing vast quantities of dollars.
The darker possibility (maybe even probability) is that the US launches a new Treasury Department-endorsed “official US stablecoin” and simultaneously declares existing stablecoins as legacy coins that are now worth X% less than the official USD stablecoin. That would devalue existing stablecoins and, thus, wipe out all or a part of the debt associated with those coins.
The big losers: Those average Joes and Josephinas who own USD stables.
The big winner: Uncle Sam, who has effectively used stablecoins and the blockchain to erase a large, multi-trillion-dollar chunk of debt.
Tomorrow, we pick up with gold’s role in this reset.
Stay tuned…
