It didn’t escape your notice that the US government hit its debt ceiling earlier this year. At that time, it was decided to postpone the crisis to 2025 and temporarily suspend the debt ceiling, but what would happen if the US government could not meet its debt obligations at a certain point and what would that mean for the price of Bitcoin?
These are the two questions we break down for you in today’s Macro Update.
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Can America still save itself?
A Op-ed for Politics Earlier this year, Nathan Dangus speculated on what America’s options would be in the event of a potential bankruptcy. For example, by creating a $1 trillion platinum coin or by switching to bonds that pay larger interest rates. There are plenty of tricks they can use to get things going again (at least for now).
The bigger problem is of course the reputational damage to the issuer of the world reserve currency, which will suffer irreparable damage.
Funnily enough, Dangus invented one too A note from the US Federal Reserve This was back in 2011, in which they discussed this very topic.
What are the main points of this note? The first thing the US Federal Reserve staff recommends is to buy bonds if the US government can no longer meet its debt obligations. Market participants can exchange government bonds in which the government no longer pays for bonds they are not yet insolvent.
In this way, the whole drama can be artificially staged, but one wonders what such a thing would do to confidence in the US dollar.
The note also said the US central bank may accept defaulting government bonds as collateral for certain loans to market participants. In this way, US government bonds continue to hold ‘value’ even though the US is technically bankrupt.
Overall, a lot of tactics are possible, but for us it is certainly particularly interesting to determine this impact on the price of bitcoin.
What does this mean for the price of Bitcoin?
It’s hard to give an exact analysis of this, but a giant ‘flight to the deficit’ is likely to occur when the US central bank has to revive the government in this way.
After all, who would be interested in buying US dollars at that time?
That way, it seems only a matter of time before the big flight to scarcity begins, and it won’t just reach Bitcoin. Initially, this will cause a huge shock to the global financial system, with consequences for the price of Bitcoin (falling) in the short term, but in the long term it seems to be a positive development mainly for Bitcoin.
This is the reason why Satoshi Nakamoto launched Bitcoin with an absolute shortage of 21 million units.
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