D.C.’s GENIUS Plan Use Stablecoins to Soak Up Its Own Debt By Joshua Hendrickson, The Daily Economy This article first appeared at The Daily Economy, an imprint of the American Institute for Economic Research, on July 24, 2025. CC-BY-4.0. To access the original article, scan the QR code. https://thedailyeconomy.org/article/dcs-genius-plan-usestablecoins-to-soak-up-its-own-debt/ programs have dominated the budget in the postwar period, exceeding national defense. Furthermore, the dramatic increase in U.S. government debt, combined with the significant rise in interest rates in recent years, has resulted in the U.S. paying more in interest on the debt than it does on national defense. This is not sustainable. To address its growing debt problem, the U.S. government has four broad policy options: 1. Broad-based tax increases. 2. Entitlement reform. 3. Allowing inflation to erode the debt’s real value. 4. Financial repression. In the current political climate, the first two options are largely off the table. Members of both major political parties claim to be better stewards of entitlement programs and those discussing higher taxes often confine such taxes to the “wealthy.” Since the debt is owed in nominal terms, one way to reduce the debt would be to issue more dollars to buy it back. This would lead to higher inflation. Although technically not a default, higher inflation would effectively reduce the real (inflation-adjusted) repayment lenders receive. It would be difficult for the U.S. government to intentionally engineer a higher rate of inflation. The 1951 Federal Reserve-Treasury Accord separated the roles of debt management and monetary policy. A policy to deliberately inflate away the value of the debt would require that the Federal Reserve relinquish its independence. That said, even an independent Federal Reserve could end up effectively monetizing the debt. Should debt continue on its unsustainable path, for example, concerns about the ability of the government to repay might lead to volatility in the bond market. The Federal Reserve would likely respond by acting as a buyer of last resort, expanding its balance sheet and ultimately President Trump recently signed the GENIUS Act into law, establishing a comprehensive regulatory framework for stablecoin issuance. Much of the celebration surrounding its passage has focused on what appears to be a remarkable policy reversal by the U.S. government. While it’s true that many politicians have embraced cryptocurrency (or have been replaced in office by those who have), the Act’s passage is not purely based on the promise of the underlying technology. That stablecoins function as a form of financial repression is at least as important, given the rising and increasingly unsustainable national debt. According to the Congressional Budget Office’s January report, the U.S. debt-to-GDP ratio is approximately 100% and is expected to reach 118% over the next 10 years. This level of debt is not unprecedented. The U.S. experienced similar levels following World War II. In fact, history is replete with examples of high levels of government debt. What makes the current U.S. debt situation particularly concerning is that it is not the result of war, and nearly every projection suggests the debt will continue to grow. If one examines historical debt-to-GDP ratios in advanced economies, a pattern emerges. A prolonged period of war tends to cause a rapid increase in debt. Following war, military spending declines, and the debt-to-GDP ratio gradually and slowly falls over time. This pattern makes sense. For much of modern history, national defense was the state’s primary expenditure. Wars are extremely costly, both in human and monetary terms. Rather than covering the monetary cost with sufficiently higher taxes during the war, governments tend to borrow in order to spread the burden of taxation over time. A prolonged war, therefore, leads to a rapid growth in debt, followed by a gradual decline. The recent history of the United States and other modern states is quite different. Expenditures on social safety net DEALERS’ CHOICE 38
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