Everyone, I am Hunter. In this article, I want to talk to you about the US debt crisis that the whole world has been paying attention to last month, and the issue of its default. Although the incident has passed, there are many things in it that are worth our thinking and discussion. We strive to explain in one article why the US debt crisis may bring about a greater financial tsunami. So is the US debt crisis good or bad for the cryptocurrency world? For ordinary people, how can we avoid the possible financial shock?

U.S. Treasury Secretary Janet Yellen has warned many times before that if Congress does not take early action to suspend or raise the debt ceiling, the U.S. government may soon default on its debt, which will have a catastrophic impact on the global economy and finance. Yellen's warning actually contains many levels of information. What she mentioned is not only a crisis in the United States itself, but also a global crisis, and even a catastrophic impact. To understand Yellen's message, we must know some background knowledge.

What is U.S. debt and the debt ceiling? U.S. debt is a way for the U.S. government to raise funds from the public to finance the government's budget and borrowing. The usual term is 10 years, 30 years, 50 years, etc. There are also short-term, two-year, three-month, etc. U.S. debt is generally considered to be one of the safest investment products. Many fund companies, stable fund companies, will allocate a certain proportion of debt. Because the U.S. government has a very strong repayment capacity, which is obvious in history. Many investors use U.S. debt as a tool to preserve value and stabilize reputation, and it is also one of the most important bond markets in the world.

Since the 18th century, the US government has been in a state of fiscal deficit for most of the time, which means that the government's expenditure has been higher than its fiscal revenue during the term of most presidents. It has become a common practice for the US government to borrow money, and the size of government debt has been growing along with the size of government deficits. In simple terms, it is eating up the food of the next year in the current year. In normal years, the harvest at the end of the year may be enough to pay off the debt of the previous year, but in the event of famine or war, the government's income is not enough to repay the debt, which is the fiscal deficit we mentioned above.

The size of the U.S. debt has grown significantly in the past decade or so. On the one hand, this is due to the COVID-19 pandemic and the wars in Afghanistan and Iraq in recent years, which have placed the U.S. government under huge spending pressure. On the other hand, due to the aging of the U.S. population, government medical spending has continued to rise. The large-scale infrastructure policy introduced by the Biden administration has also led to a substantial increase in fiscal spending. At the same time, the U.S. government’s tax revenue has not kept up with the pace of spending.

It is obvious that the US government cannot afford to borrow money from abroad, and needs to raise the ceiling and borrow more to maintain current expenses. However, there is currently a ceiling issue. This ceiling is also a rule set by Congress during World War I, which restricts the US government and prevents it from raising the ceiling without restraint. In fact, the US debt ceiling has been raised more than 100 times, and the debt ceiling has repeatedly hit new highs during the terms of the last few presidents. During Obama's term, the latest US debt ceiling was $18 trillion, created in 2015. During Trump's term, this number was raised to $22 trillion. In March 2019, during the COVID-19 pandemic, the US Congress suspended the debt ceiling to temporarily lift the US government's spending restrictions. This caused the US government's debt to soar wildly to $27 trillion.

By 2021, the U.S. Congress raised the debt ceiling for the latest time. The U.S. debt ceiling has reached the current 32 trillion U.S. dollars, which has increased by more than 2,700 compared to the initial debt ceiling of 11.5 billion U.S. dollars in 1917. Then the question is, can we directly start the printing press and print a large number of dollars to repay the debt? The answer is theoretically no. The right and responsibility of the Federal Reserve to print banknotes are granted to the U.S. Treasury Department, not the Federal Reserve itself. Therefore, if the Federal Reserve wants to print a large number of banknotes, it also needs the authorization of the Treasury Department to do so. In addition, the Treasury Department also needs to consider the potential consequences and adverse effects of printing a large number of banknotes, such as inflation and currency depreciation. In addition, even if the Treasury Department authorizes the Federal Reserve to print a large number of banknotes, this practice may cause concerns and distrust in other countries, leading to turmoil in global financial markets. Therefore, it is unlikely that the Federal Reserve will simply solve the U.S. debt problem by printing money. #美债

Therefore, the United States must also consider the feelings of creditor countries and cannot do whatever it wants. If it wants to raise the ceiling again to get through the crisis, it needs the approval of both houses of Congress. Last month, the Democratic and Republican parties were deadlocked, but in the end they voted to raise the debt ceiling again. Before that, the Obama administration also chose to compromise in the end and chose to cut government spending before passing the vote. What was different from the current situation was that the situation was close to default. This tension also triggered violent fluctuations in the global capital market. U.S. stocks fell sharply and directly led to Standard & Poor's downgrading the U.S. sovereign credit rating for the first time, which made the United States face higher borrowing costs. So the cost of borrowing in the second year of the United States, that is, in 2012, rose by $1.3 billion, and continued to rise in the following years, which basically offset some of the cost-cutting measures in the bipartisan negotiations at the time.

For some economists, the above market turmoil is only a short-term impact. More importantly, in the long run, fiscal spending cuts mean years of budget austerity in the United States, which may have more serious long-term effects, such as dragging down the US economic recovery. Josh Bivens, chief economist of the Economic Policy Institute, a left-wing think tank in the United States, said in reviewing the 2011 debt crisis that when these cuts were implemented, we were still in a fairly depressed economy and were in the recovery stage from the Great Recession. They just made the recovery last much longer than it should have. For the next six or seven years, the US government did not provide truly valuable public products and services because they were greatly reduced in fiscal spending. And last month's debt ceiling crisis was also seen by many as a replica of the 2011 debt ceiling crisis, and the US economy was also in a similar recessionary environment.

U.S. Treasury Secretary Janet Yellen certainly has more information about the U.S. debt crisis than we do. Moreover, the U.S., as the world's largest economy, is facing such a debt crisis. We don't know what will happen to other small European countries. The Greek debt crisis a few years ago also brought a certain degree of financial tsunami to the world, so Yellen warned that this may have a catastrophic impact on the world, especially for Japan and China, the largest holders of U.S. Treasury bonds. If the United States defaults, these two countries will be greatly impacted, which will also imply that the bonds of other countries will be even less valuable. In this way, a domino effect will occur, triggering a greater financial tsunami.

Next, let's analyze the impact of the sovereign debt crisis on investors. The most important impact of the sovereign debt crisis is the financial crisis. When the financial crisis breaks out, the stock market and the real estate market will be hit, and a large amount of funds will flow out of these markets, causing the market price to fall sharply. But at the same time, the opposite situation may occur in the Bitcoin market, that is, investors will choose to transfer funds to the Bitcoin market, because Bitcoin is not affected by national policies, and its market price fluctuates greatly, which can get higher returns for investors. In fact, similar situations have occurred in history. For example, during the 2008 financial crisis, Bitcoin had not yet come out, but the price of safe-haven assets such as gold rose sharply. In addition, during the European debt crisis in 2011, the price of Bitcoin also rose sharply, which shows that in repeated financial crises, investors may transfer funds to safe-haven markets such as Bitcoin and gold to get higher returns.

On the other hand, the sovereign crisis and financial crisis have also led to people's distrust of the traditional financial system. Therefore, many people are looking for another way of financial investment. At this time, Bitcoin naturally becomes their advantageous choice. For the decentralized and anonymous nature of Bitcoin, many people begin to regard it as a safe-haven asset. The sovereign debt crisis provides us with an important consideration, that is, how we should deal with the financial crisis that may occur in the future. As an emerging cryptocurrency, Bitcoin's performance in the financial crisis is worth thinking about. Of course, we need to realize that there are also great uncertainties and risks in the Bitcoin market, and we need to invest and manage risks prudently. So, once the domino effect appears, ordinary people should run away from their stocks earlier. If you have a large amount of real estate that is not convenient to run away, you should think about how to regulate this real estate and choose to buy a proper amount of safe-haven Bitcoin or gold. Like the collapse of Silicon Valley Bank, the more traditional banks go bankrupt, the more favorable it will be for the cryptocurrency Bitcoin. I believe that friends in the currency circle will easily understand this truth. #BTC

Okay, this article ends here. I believe you will gain something after reading it. Follow me and see you in the next article!