Will The Debt Ceiling Kill Crypto?

Posted 37 seconds ago | by Catoshi Nakamoto

Over the past couple of weeks, you’ve probably seen headlines about how Democrats in Congress were recently able to cut a deal with Republican lawmakers to avert a government shut down – Well, at least until December 3^rd. You also might have seen countless articles about Joe Biden’s ambitious $3.5 trillion dollar spending plan as well as a bipartisan infrastructure deal. It’s safe to say, the government currently has their work cut out for them, and the clock is ticking. Behind all the smoke and mirrors, there’s a much larger problem at hand that needs to be handled as soon as possible: the debt ceiling. But does this affect crypto?

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Lets get it!

Welcome to BitBoy Crypto. Home of the Bitsquad, the largest crypto community in all of the interwebs. My name is Ben. Every day on this channel I show YOU how to MAKE MONEY in Crypto. If you like money and crypto then make sure to hit that subscribe button. In this video we will discuss the details of the debt ceiling, how it has affected the markets in the past and ultimately how this issue could impact the crypto community.

The debt ceiling. This refers to the debt and financial obligations the U.S has ALREADY accrued. This includes things such as paying interest on the country’s debt or paying for previously authorized spending on things like Social Security benefits or paychecks for our troops. To be clear, although it might sound like it, the debt ceiling is not a tool that authorizes new spending. That is handled in completely separate legislation, such as a bill for the next federal budget. The debt ceiling is simply a limit to the amount of money the U.S government can borrow in order to pay its debts. Before we take a deeper dive into this highly controversial, political topic, it’s important to state the fact that here at BitBoy Crypto, we do not take sides, Our primary goal is to inform and educate the bitsquad on relative news that impacts the financial community.

So what’s the biggest difference between the U.S government and the Lannisters?

The Lannisters always pay their debts.

Prior to the establishment of the Debt ceiling, Congress was required to approve each issuance of Debt in a separate piece of legislation. During World War 1, Congress created the Debt ceiling through the Second Liberty Bond Act of 1917. The ceiling, or limit, was set at $11.5 billion dollars in order to simplify the previous time consuming process and enhanced borrowing flexibility. With World War 2 looming in 1939, Congress created the first Debt limit and set it at $45 billion dollars. Since its creation, Congress and the President have modified the Debt limit 80 times. The last President in US history to leave the Oval Office with the Debt level lower than it was when he started was Calvin Coolidge back in 1929.

You can see the numbers for US Debt by President for yourself at self.inc. Over time, the Debt ceiling has been growing exponentially. From the 1980s to the 2000s, it increased from 1$ trillion to over $12 trillion. The dubiously named “Budget Control Act of 2011” raised this ever-growing number to $16.4 trillion. The battle over the debt ceiling and budget deficits in 2011 contributed to Standard & Poor’s (S&P) downgrading the U.S credit rating for the first time ever. This also caused a 17% fall in the stock markets. Lawmakers have suspended the debt limit seven times since February 2013. The most recent suspension of the debt ceiling was under the Bipartisan Budget act of 2019; it was reinstated on August 1^st this year. Last week, the House of Representatives passed a bill that would yet again suspend the debt limit. Despite their efforts, the bill got shut down shortly afterwards by Republicans in the Senate; a protest likely traced to the massive $3.5 trillion dollar infrastructure package that’s currently working its way through the House of Representatives.

The current debt ceiling is a staggering $28.4 trillion dollars. This year, the interest payment alone on the national debt will cost $300 billion dollars. That means every citizen of the US is on the hook for over 80,000 dollars of government debt. You can follow the U.S national debt in real time at usdebtclock.org. link in description. According to the U.S. Debt Clock, if things continue the way they are going, in 2025, the national debt is projected to be $48 trillion dollars. That’s more than triple the GDP of CHINA.

It’s common knowledge that the U.S spends more money than it takes in. The Treasury Department finances that extra spending money by selling government securities, bonds and utilizing tax revenue. Congress controls the debt ceiling by limiting how much the Treasury Department can borrow so it can pay for the programs it’s legally obligated to fund: from Social Security and Medicare to military salaries, tax refunds, national interest payments, etc. A common analogy to the debt ceiling is like a credit limit on a credit card, a MAXED out one at that. Since the inception of the debt ceiling, the U.S. government has never once defaulted on its debt payment.

This is why U.S treasuries are one of the most popular “risk-free” assets on earth. Since the 1940s much of the global economy has been built around the risk-free nature of US bonds. The Treasury Department, who is in charge of making sure the government always pays its bills on time, has been deploying “extraordinary measures” to meet those obligations in order to prevent default. Treasury Secretary Janet “No Tellin” Yellen recently told lawmakers that the government will run out of cash to pay its bills on October 18^th. The U.S has $80 billion dollars worth of liabilities due just this month. Yellen said, “A delay on raising the debt ceiling would not only make the federal government look irresponsible. It would likely cause irreparable damage to the US economy and global financial markets.” She also recently stated that she is on board with doing away with the debt ceiling all together.

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Simply put, our options here are to suspend the debt ceiling again, raise the debt ceiling again, do away with the debt ceiling all together, or default on our debt payments for the first time in U.S. history. All of these outcomes involve us delaying the inevitable. The reality is, the higher the debt goes up, the more painful the payback will eventually be. Based on simulations of Moody’s Analytics model of the U.S. economy, the downturn of default would be comparable to that suffered during the 2008 financial crisis.

That means real GDP would decline almost 4% peak to trough, nearly 6 million jobs would be lost, and the unemployment rate would surge back to close to 9% (see Table). Stock prices would be cut almost in one-third at the worst of the selloff, wiping out $15 trillion in household wealth. Treasury yields, mortgage rates, and other consumer and corporate borrowing rates would spike. Even then, the rates would never return to where they were previously. If we were to default, the U.S. Treasury securities no longer would be risk-free and future generations of Americans would pay a steep economic price.

To bring back the credit card analogy, if you were a bank, and a customer owed you 28.4 trillion dollars, would you let this customer open a second credit card and add 3.5 trillion more dollars to the Debt? Yes they’ve never missed a payment but…somethings gotta give soon. If the government cannot borrow money to continue paying for programs, there will be real-world effects for millions of Americans. Here are some of those potential effects according to Janet Yellen:

• 15 million seniors could stop receiving Social Security payments, or see delays.
• 30 million families could stop receiving President Joe Biden’s expanded Child Tax Credit payments, or see delays.
• U.S. military service members could stop receiving paychecks.
• Veterans’ benefits could stop or be delayed.
• Postal workers and federal employees could stop receiving paychecks.
• The United States’ credit worthiness could be downgraded, spiking interest rates, which would raise mortgage, car and credit card payments making it harder to buy a house or a car.
• Doubt in the typically reliable U.S. currency could tank the markets, hurting 401ks and other investments. (The S&P 500 lost 17% in the months surrounding the last debt ceiling standoff in 2011.)
• FEMA funding for hurricane and wildfire victims could stop.
• Public health funding for pandemic mitigation efforts could be cut off.
• Child nutrition program and other food assistance could stop.

Darned if I do darned if I don’t. Clearly defaulting shouldn’t be an option, but if that was to happen for the first time in U.S. history, that would definitely count as a “Black Swan” event that could prematurely send the markets into bearish territory for the foreseeable future.

Another popular idea circulating the Internet to help the government alleviate the pressure of the debt ceiling would be to mint a trillion dollar coin. This idea could be it’s own video by itself, and it could happen in the distant future, but I’ll save you the details considering the White House publically rejected the idea of the trillion-dollar coin on September 20^th.

According to Philip Wallach, American Enterprise Institute senior fellow to CNN, “At the end of the day, a fiat currency’s stability doesn’t rest on anything other than peoples belief that money is worth what they’ve believed it to be worth. Doing something like the trillion- dollar coin is a great way to get people to think that the dollar is not such a great currency.”

So what does this mean for crypto? While I’m sure someone is making a Trillion Dollar Meme Coin for the laughs, the short term affects of more debt will be bullish for all crypto. The dollar will continue to lose value and Bitcoin will go up in price. But the psychological impact of going in to more debt and the possibility of deflation making that debt even more painful to pay back, could send all economies to the Wall, including crypto. But that moment for crypto will be it’s time to shine. And as the traditional finance is burning in Wildfire waiting for the government to get it’s act together…crypto will move in faster than a Dothraki hoarde and chance finance forever.

At the end of the day, what makes Bitcoin, Ethereum and other Alts so powerful is that they are a global store of value. Regardless of each countries state of economic affairs, crypto will maintain and appreciate over time on a global level. This is why China doesn’t want its people investing in Bitcoin; they want to keep their money in their central currency to maintain power over their citizens. We dont have control over what happens in China, just like we don’t have control over the outcome of the Debt ceiling. What we do have control of is where we decide to store our own personal value. $100 dollars in 2013 is equivalent in purchasing power to $117 dollars today. In October 2013, one Bitcoin was worth $196.02 and today one Bitcoin is worth $47,686. According to Gemini, merely 14% of the American population currently own crypto assets. You do the math. Lord Varys once said, “Power resides where men believe it resides. It’s a trick; a shadow on a wall. And a very small man can cast a very large shadow.”

That’s all I got, be blessed, BitBoy out!

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