Will The Debt Ceiling Kill Crypto?
You also might have seen countless articles about joe bidens ambitious 3.5 trillion dollar spending plan, as well as a bipartisan infrastructure deal its safe to say. The government currently has their work cut out for them, and the clock is ticking behind all the smoke and mirrors theres. A much larger problem at hand that needs to be handled as soon as possible the debt ceiling, but does this affect crypto lets, get it welcome to bitboy crypto home of the bit squad, the largest and greatest crypto community and all 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 well 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 countrys 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 us government can borrow in order to pay its debts before we take a deeper dive into this highly controversial political topic, its important to state the fact that here at bit, boy crypto, we do Not take sides, our primary goal is to inform and educate the bit squad on relative news that impacts the financial community, so whats the biggest difference between the us government and the lannisters, a lannister dont say it 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.
One 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 enhance borrowing. Flexibility with world war ii looming in 19′ congress created the first debt limit and set it at 45 billion, since its creation congress and the president have modified the debt limit 80 times. The last president in u.s history, to leave the oval office with a debt level lower than it was when he started was calvin coolidge back in 1929.. You can see the numbers for u.s 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 dollars. 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 the s ps, downgrading the u.s credit rating for the first time ever. This also caused a 17 percent fall in stock markets. Lawmakers have suspended the debt limit seven times since february 2013. The most recent suspension the debt ceiling was under the bipartisan budget act of 2019.. It was reinstated on august 1st 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 infrastructure package, thats, 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 that every citizen of the u.s is on the hook for over 80 thousand dollars of government debt. You follow the u.s national debt in real time at usdetclop.org. The link is down below in the description now, according to the us debt clock. If things continue the way theyre going in 2025, the national debt is rejected to be 48 trillion dollars, thats more than triple the gdp of china, its 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 its legally obligated to fund for social security and medicare to military salaries, tax refunds, national interest payments, etc. Common analogy to the debt ceiling is like a credit limit on a credit card, a maxed out, one of that says the inception of the debt ceiling. The us 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 u.
s bonds. 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 notel and yellen recently told lawmakers that the government will run out of cash to Pay its bills on october 18th, the us says 80 billion worth of liabilities due just this month, felon 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 u.s economy and global Financial markets. She also recently stated that she is on board with doing away with the debt ceiling altogether. You can do away with your fears and questions about crypto join the bid squad by smashing that like and subscribe button, but simply put our options here, are to suspend the debt ceiling again. Raise the debt ceiling again do away with the debt ceiling altogether or default on our debt payments for the first time in u.s history. All 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 moodys analytics model of the us economy. The downturn of default would be comparable to that suffered during the 2008 financial crisis. That means real gdp would decline. Almost four percent peak to trough nearly six million jobs would be lost and the unemployment rate would surge back to close to nine percent.
Stock prices would be cut almost in one third, at the worst of the sell off wiping out 15 trillion dollars in household wealth, treasury yields, mortgage rates and other consumer and corporate borrowing rates would spike. Even then, the returns 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 never missed a payment, but somethings got to 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 would stop receiving president joe bidens 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.
For instance, the s p 500 lost 17 percent in the month 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 programs and other food assistance could stop. So youre, basically darned. If you do darned, if you dont, clearly defaulting shouldnt, 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 its own video by itself and it could happen in the distant future but ill save you. The details, considering the white house has already publicly rejected the idea of the trillion dollar coin. On september 20th, according to philip wallach american enterprise institute senior fellow to cnn, he said at the end of the day a fiat currency, stability, doesnt rest on anything other than the peoples, belief that money is worth what theyve 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 im sure someone is making a trillion dollar mean coin for the laughs, the short term effects 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 into 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 its day to shine and, as the traditional finances burning in wildfire waiting for the government to get attacked together, crypto will move in faster than a dothraki hoard and change finance forever and the other day. What makes bitcoin ethereum and other all so powerful is that they are a global store of value, regardless of each countrys state of economic affairs, crypto maintain and appreciate over time on a global level. This is why china doesnt 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 dont 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 in two thousand. Thirteen is equivalent in purchasing power to a hundred and seventeen dollars. Today, in october 2013, one bitcoin was worth 196 dollars and two cents. Today, one bitcoin is worth forty, seven thousand six hundred and eighty six dollars according to gemiini merely 14 of the american population. Currently own crypto assets, you do the math lord varus once said, power resides where men believe it resides its a trick.
A shadow on a wall and a very small man can cast a very large shadow thats.