Discussions about the possibility of U.S. default often revolve around not raising the debt ceiling, but a recent analysis provided a different perspective, focusing on the potential consequences of Donald Trump's budget bill, which he calls "The One Big Beautiful Bill." Although U.S. Treasury Secretary Scott Bessent insists that the U.S. will "never default," this view may be overly optimistic.

The analysis argues that the U.S. will default – but not in the traditional way. With "exorbitant privilege" – the ability to issue debt in a currency they can print without limits – financing the deficit could also occur without limits. However, default here does not mean failing to meet contractual obligations, but rather through more sophisticated forms.

The "Big Beautiful Bill" and its implications:

The 1,000-page bill is expected to extend tax cuts from the first term and add many new spending items. The Congressional Budget Office (CBO) estimates that this bill will increase the annual federal deficit from $1.6 trillion to about $3.8 trillion over the next decade. Even before this bill was introduced, the U.S. was facing a debt-to-GDP ratio of up to 172% by 2054 due to irresponsible fiscal policies.

Although Trump claims that new tariffs will increase revenue, the reality is that they will reduce economic growth, thereby reducing revenue from income and corporate taxes, while also incurring collection costs. Furthermore, these amounts will be offset by tax cuts. In other words, this is really a "Big Ugly Bill."

Potential forms of default:

The main question is not whether the U.S. will default, but how. "Exorbitant privilege" allows the government to default in many ways:


Inflation: This is the oldest trick to reduce the value of debt through printing money.
Financial manipulation: For example, turning 10-year treasury bonds into perpetual zero-coupon bonds, essentially having no repayment value.
Taxing holders of foreign bonds: Section 899 of the Trump bill proposes taxing holders of foreign treasury bonds from countries deemed by the U.S. to discriminate against American companies. This is seen as a form of "haircut" on the assets of foreign investors, a form of disguised default in the guise of taxation.
Using cryptocurrency (crypto debt): The analysis argues that issuing debt in cryptocurrency is also a way to default. A stablecoin pegged to#usd is backed by treasury bonds, while treasury bonds are backed by the U.S. government and the Federal Reserve (Fed). The Fed can create unlimited USD. The U.S. could turn treasury bonds into government-issued stablecoins, not backed by government debt but directly by the Fed, and could even be backed by Bitcoin. This would be a new type of Ponzi scheme and is also why some members of Trump's economic team are very enthusiastic about cryptocurrency.

The role of Bitcoin and financial innovation:

Despite many concerns, cryptocurrency still has the potential to bring about real innovation by eliminating financial intermediaries or serving as a hedge against the depreciation of fiat currency. However, forms of "financial innovation" such as tokenizing government debt are seen as a way to repackage debt and hide risks from investors, similar to the views of former Fed Chairman Paul Volcker.

In summary, while the U.S. may not default in the traditional sense, Trump's budget bill and irresponsible fiscal policies could lead to more sophisticated forms of default, in which Bitcoin and cryptocurrency could play a surprising role.

Investing in cryptocurrency carries high risk due to significant price volatility.