南帝一灯大师
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US Debt Crisis!
Are stablecoins the "lifeline" for USD hegemony, or the "death knell"?
- The United States is facing a staggering $36 trillion in debt, with interest on maturing debt in 2025 accounting for 3.2% of GDP, reaching a historical peak. Traditional buyers, such as Japanese and Chinese sovereign funds, continue to reduce their holdings, while the Federal Reserve is also tapering its balance sheet and refusing to provide a backstop, leaving US Treasuries trapped in a spiral of unsolvable dilemmas.
- Stablecoins exhibit "fiscal arbitrage" behaviors, such as Tether financing costs being lower than the average of Treasury auctions, and although the GENIUS Act mandates 100% US Treasury reserves, there exists regulatory arbitrage opportunities, opening a gray financing channel for the Treasury.
The "Three Layers of Nesting" in Political Games
- At the electoral level, Trump needs to facilitate interest rate cuts before Q3 2024 to avoid pressure on US stock valuations.
- At the monetary policy level, Powell faces a trilemma: cutting rates could cause inflation to rebound, maintaining rates could trigger a liquidity crisis in US Treasuries, and allowing stablecoins to purchase debt could result in a loss of control over the balance sheet.
- At the financial security level, Treasury Secretary Yellen is accelerating the approval of stablecoin bank licenses through the OCC to guide funds into short-term debt.
The "Systemic Risk Transfer" of the GENIUS Act
- In the short term, once the act is passed, stablecoins can absorb a certain amount of US Treasury issuance, providing some relief.
- In the long term, there exists a risk of collateral chain rupture; if stablecoins face a bank run, private risk will be nationalized, and algorithmic stablecoins may exploit loopholes to weaken the credibility of the USD peg.
- The optimal path is for the US debt crisis to push stablecoins to take over, prompting the Federal Reserve to cut rates, leading to the expansion of stablecoin size, increased demand for US Treasury collateral, and ultimately the complete breakdown of fiscal discipline.
- The black swan path is that giants like Tether are deemed "shadow primary dealers," triggering Congressional legislative battles for minting authority, resulting in a collapse of a digital currency version of the "Bretton Woods system."
The core contradiction lies in the fact that USD hegemony relies on unregulated private currencies for maintenance, trapped in a systemic paradox. This situation reflects the complex issues and potential risks faced by the US in maintaining USD hegemony. The game between the US debt crisis and stablecoins may have far-reaching impacts on the global financial system.
Are stablecoins the "lifeline" for USD hegemony, or the "death knell"?
- The United States is facing a staggering $36 trillion in debt, with interest on maturing debt in 2025 accounting for 3.2% of GDP, reaching a historical peak. Traditional buyers, such as Japanese and Chinese sovereign funds, continue to reduce their holdings, while the Federal Reserve is also tapering its balance sheet and refusing to provide a backstop, leaving US Treasuries trapped in a spiral of unsolvable dilemmas.
- Stablecoins exhibit "fiscal arbitrage" behaviors, such as Tether financing costs being lower than the average of Treasury auctions, and although the GENIUS Act mandates 100% US Treasury reserves, there exists regulatory arbitrage opportunities, opening a gray financing channel for the Treasury.
The "Three Layers of Nesting" in Political Games
- At the electoral level, Trump needs to facilitate interest rate cuts before Q3 2024 to avoid pressure on US stock valuations.
- At the monetary policy level, Powell faces a trilemma: cutting rates could cause inflation to rebound, maintaining rates could trigger a liquidity crisis in US Treasuries, and allowing stablecoins to purchase debt could result in a loss of control over the balance sheet.
- At the financial security level, Treasury Secretary Yellen is accelerating the approval of stablecoin bank licenses through the OCC to guide funds into short-term debt.
The "Systemic Risk Transfer" of the GENIUS Act
- In the short term, once the act is passed, stablecoins can absorb a certain amount of US Treasury issuance, providing some relief.
- In the long term, there exists a risk of collateral chain rupture; if stablecoins face a bank run, private risk will be nationalized, and algorithmic stablecoins may exploit loopholes to weaken the credibility of the USD peg.
- The optimal path is for the US debt crisis to push stablecoins to take over, prompting the Federal Reserve to cut rates, leading to the expansion of stablecoin size, increased demand for US Treasury collateral, and ultimately the complete breakdown of fiscal discipline.
- The black swan path is that giants like Tether are deemed "shadow primary dealers," triggering Congressional legislative battles for minting authority, resulting in a collapse of a digital currency version of the "Bretton Woods system."
The core contradiction lies in the fact that USD hegemony relies on unregulated private currencies for maintenance, trapped in a systemic paradox. This situation reflects the complex issues and potential risks faced by the US in maintaining USD hegemony. The game between the US debt crisis and stablecoins may have far-reaching impacts on the global financial system.
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content. See T&Cs.
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