Based on the content of the following article, even a newbie can understand that the U.S. government is facing a debt crisis and failure to raise the debt ceiling in a timely manner could lead to a default and a credit rating decline, negatively impacting the U.S. dollar and the U.S. stock market. Therefore, as an investor, you can make transactions based on the following recommendations:
– Position adjustment: If you hold a large amount of U.S. dollar or U.S. stocks, you can reduce your position to reduce the risk appropriately. Some safe-haven assets, such as gold, Japanese yen or Swiss franc, can be added.
– Direction of trade: If one believes that the U.S. government will eventually be able to solve the debt problem, one can buy undervalued U.S. dollars or U.S. stocks in anticipation of a rally when the market panics. If you think the U.S. government will not be able to solve the debt problem, you can sell overvalued U.S. dollars or U.S. stocks in anticipation of a decline when the market appears optimistic.
The original article is as follows:
Caixin, May 5 (Editor Malan) – The long-troubled U.S. government debt ceiling problem could be solved immediately in three easy steps: the U.S. Treasury would first mint a $1 trillion coin, then deposit it at the Federal Reserve, which would then transfer it to the Treasury’s account.
This idea is not really new, and has been brought up for discussion at almost every U.S. debt impasse since it was proposed in 2011. In 2013, thousands of people even signed a petition on the White House website, hoping that the then Obama administration would respond.
While the proposal did not become the rescue option Obama chose that year, he later commented in a 2017 interview that officials could consider the concept as the financial meltdown swept the nation.
So, is the current moment of a growing U.S. banking crisis the time Obama was talking about? And will the Biden administration, still in debt limbo, really consider this outlandish idea?
Imminent On Monday, U.S. Treasury Secretary Yellen warned that the U.S. government could default on its debt as early as June 1, and that it would lead to a serious economic and financial disaster.
What’s even more stifling is that some U.S. media estimated that the total number of working days to meet Biden’s stay in Washington, D.C., and for members of both houses of Congress to go to work in the whole month of May is only six days. This represents only 6 days left before the government debt ceiling expires.
The intransigent bipartisanship has left the market with no hope of reaching the debt ceiling, and it has put the concept of a trillion dollar coin back in the hot seat.
Willamette University School of Law professor Rohan Grey previously said that when it comes to the debt, if other decent solutions had worked, the issue would have been resolved by now, but the current situation remains disappointing. Coins are that very stupid but effective solution.
Nobel laureate economist Paul Krugman also firmly embraces this one coin, arguing that printing money just to cover the deficit is really a form of backdoor borrowing, a bookkeeping trick. The Federal Reserve would then eliminate any effects triggered by this coin by selling its debt portfolio.
Nonetheless, the U.S. media noted that Biden’s aides are still looking for other legal workarounds, but it remains to be seen how effective they will be.
Why the coin U.S. law states that the U.S. Treasury does not have the authority to issue gold, silver, copper or paper money at will, but it has the power to mint Perkin coins at will, with no limits on either quantity or denomination. The existence of this legal loophole provides the basis for the idea of a trillion dollar coin.
And this coin is equivalent to the huge amount of money that the Treasury Department has received for nothing, which in theory can indeed be used to buy back the U.S. Treasury debt, thus avoiding a government default and the Treasury Department no longer has to look at the face of both parties in Congress.
Compared to the economic turmoil caused by government default, many people believe that the coin to slow down the momentary emergency is very feasible, but opponents of a faction of people will be this idea as the “end of empire” economic strategy.
According to the analysis, a trillion dollar coin hides a layer of deeper meaning: that is, the U.S. President has the power to mint money and can directly influence monetary policy. In addition, the large amount of coins out of the world, meaning that the amount of money rose, for inflation is undoubtedly worse.
Other experts point out that the debt crisis is essentially a confrontation between the two parties, and the financial markets fear the destructive nature of the confrontation, which cannot be solved by a coin. More importantly, this coin, even if issued, will not stop the decline in the U.S. sovereign debt rating, but rather turn the government into a laughing stock.
This is a risk that Obama did not dare to take when in office, and I think it is also a shame that Biden cannot afford. So, back to the original point, how to make a bipartisan agreement on the debt ceiling within six working days, Biden and the U.S. Congress must be headache.
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