Stablecoins could potentially upset the balance of Treasury issuance

Investment Analysis Clubs Macro Economic Trends and Risks
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A stablecoin is a type of cryptocurrency designed to maintain a stable value, typically pegged to an external asset like a fiat currency (e.g., the US dollar) or a commodity (e.g., gold).

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[snip lots of economic news]

Could crypto prop up America’s finances?

The GENIUS Act passed a significant Senate procedural hurdle on Wednesday, moving one step closer to expansive new regulations of so-called stablecoins.

While some critics of the bill fear that it will let tech companies become more powerful, another significant debate has emerged over whether it will bolster or undercut America’s banking system and financial markets.

Stablecoins could grow into a greater than $2 trillion market in the coming years, Treasury Secretary Scott Bessent testified on Capitol Hill on Wednesday. If that prediction holds, stablecoin issuers would need to buy a lot of liquid assets — think short-term Treasury notes and bonds, as well as dollar deposits — to back their digital tokens, and that could strengthen the buck and bring down certain Treasury yields… [end quote]

The so-called “GENIUS Act” is still being debated. Currently, stablecoins are part of the Wild West of crypto.

The GENIUS Act, formally known as the Guiding and Establishing National Innovation in U.S. Stablecoins Act, is a U.S. Senate bill that aims to establish a federal regulatory framework for payment stablecoins. It defines payment stablecoins, outlines clear procedures for obtaining licenses to issue them, and sets requirements for reserves and operations. The bill aims to provide clarity and stability to the stablecoin market, which is a form of digital currency pegged to a fixed value, typically a currency like the U.S. dollar.

If the GENIUS Act were to pass, by law, stablecoins would need to back up their crypto dollars with actual dollars and/ or Treasury obligations. Unlike banks, stablecoin issuers tend to hold short-term Treasury bills. The potentially huge scale of stablecoin buying of T-Bills could force Treasury to push the balance of funding toward the short durations in order to avoid raising short-term yields.

In a way, stablecoins hearken back to pre-Civil War America when banks issued their own currencies because the government did not yet have a paper currency. If today’s government (Treasury and Federal Reserve) decided that the crypto world really needed a stablecoin pegged to the USD it would probably be better for them to issue it themselves instead of putting it into the hands of private companies. But that’s not on the table right now.

Considering the $Trillions potentially involved in stablecoins (including domestic and international transactions) they could have the potential of causing a financial crisis. It’s no wonder that Congress is looking at regulating them similar to banks.

Wendy

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Heresy Financial is a new-to-me in the last couple months YTer who pontificates about economics, macroeconomy, the GENIUS act, global macroeconomy, etc.

He says US treasuries are being dumped by other countries, especially the BRICS+ group, who are moving to gold and/or BTC, to back their trade.

This, IMO, tracks with what I see from other sources.

If I understand Heresy’s argument, these countries will use stablecoin, anchored by gold/BTC/? to facilitate trade.
His argument includes that the GENIUS act is an attempt by the US to underpin stablecoin with US treasuries.
This is an attempt by the US to shift from other countries directly holding US debt (cause they are dumping US debt), to underpinning the medium they will use for trade.

That’s how I think I understand Heresy’s arguments.

And:

This gives me the opportunity to ask if this Heresy guy is credible?

:thinking:
ralph

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Much of what he says is factually true. However, he doesn’t understand the banking system – not once did he say “fractional reserve banking” which is the actual term for what he calls “banks printing money.”

His main conclusion is that the government’s need to borrow a tremendous amount of money will lead to inflation similar to the 1970s. He mentions that Treasury Secretary Bessent wants to deregulate the banks, enabling them to lend more money. If that happens the banking system will be destabilized.

Would I use this fast-talking guy as a financial advisor? Not likely. :wink:

Wendy

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The thing most threatening in guys like this is that they are NOT looking to build a bankable reputation based on useful advice and sagacity, they are

LOOKING FOR VIEWS, LIKES, and short term advertising revenues.

Civil societies were built upon and depend on forthright speech and information. The economics of printing presses and even of TV broadcast kept the slant towards honesty in some form.

Kaboom! All that is gone as we slavishly wander down the simplified pathways of short term brain tweaked distraction, and reality (a complex phenomenon!!!) be damned.

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It’s a feature not a bug.

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I think Randolph Hearst and Rupert Murdoch would disagree with you here. Both made a handsome living doing the opposite. The only reason that broadcast didn’t go that way (at least until recently) is that they were regulated by the government and were allowed to operate only in the “public interest.”

Going all the way back to the “penny press” you’ll find that they were loaded with sensationalism, partisanship, and sometimes falsehoods - so long as they captured eyeballs. Some papers took a strictly partisan tone, and even put the names of political parties on the mastheads. Others were more quiet about it but were supported by parties, wealthy benefactors, unions, or others.

Back to broadcast: for most of its history there was “The fairness doctrine”, which required licensees to try to present contrasting viewpoints (if they were going to present viewpoints at all). There was no government monitor, it was strictly self-regulating - except at license renewal time when interested members of the public could challenge a license if they thought the licensee was not doing so. It was an expensive and time consuming process, so it was rarely invoked, and even more rarely did a licensee lose the license, but it was still “too burdensome” for some, and Reagan repealed it during his term and we live with the consequences ever since.

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