US Debt Devaluation via Crypto

Overview

These notes summarize a discussion about claims from a senior adviser to Vladimir Putin that the United States may use cryptocurrency and stablecoins to secretly devalue its $37 trillion national debt. The discussion explores the mechanics of debt devaluation, historical context, the role of stablecoins, global reactions, and the interplay between private companies and government policy, with additional insights into inflation, monetary policy, and economic fundamentals.

Claims from Russian Adviser

Anton Kobyakov, a long-time senior adviser to Russian President Vladimir Putin, stated at the Eastern Economic Forum that the US is preparing to use crypto and stablecoins to move and devalue its $37 trillion debt.
Kobyakov claims the US intends to rewrite the rules of the gold and crypto markets, pushing the global financial system into what he calls a "crypto cloud."
According to him, the US would transfer its massive debt into digital assets like stablecoins, then devalue it, effectively resetting the system and leaving other countries at a disadvantage.

Context and Historical Precedents

Devaluing debt means reducing its real value through inflation or currency manipulation, not by defaulting or refusing to pay.
The US has a long history of using inflation to lower the real burden of its debt, including after World War II, during the high inflation of the 1970s, and following the pandemic when large amounts of new money were created.
The process works by increasing the money supply: if the amount of goods stays the same but there are more dollars in circulation, prices rise (inflation), and the real value of existing debt falls.
This method allows the US to repay debt with dollars that are worth less, effectively "cheating" creditors by diluting the currency's purchasing power.
This approach is described as the "oldest trick in the book" and has been a recurring strategy in US monetary policy.

Role of Stablecoins

Stablecoins are digital tokens pegged to the US dollar and often backed by US treasuries, allowing the US to extend its monetary influence globally.
As stablecoins become more widely used, especially outside the US, foreign holders of these tokens indirectly help fund US debt and share in the inflationary losses when the dollar is devalued.
The adoption of stablecoins means that inflationary effects are distributed globally, not just within the US, as anyone holding dollar-backed stablecoins experiences the same loss of purchasing power.
Stablecoins can be issued by private companies, such as banks, trust companies, or approved non-bank firms, which can make them appear more neutral and less politically charged than government-issued digital currencies.
US regulations, like the Genius Act, allow approved private issuers to create regulated, dollar-backed stablecoins, potentially enabling large tech companies (e.g., Apple, Meta) to issue their own digital currencies if they meet regulatory requirements.

Distrust and Gold Accumulation

Many countries are wary of stablecoin systems due to the lack of fully transparent, real-time audits of the reserves backing these tokens. Trust in issuers and auditors, who are mostly US-based, is a significant concern.
There is historical precedent for distrust: the US once promised dollars would always be redeemable for gold, but this link was abruptly severed in 1971, undermining global confidence.
As a result, many countries are increasing their gold reserves, preferring a tangible asset with a long history as a store of value over potentially manipulatable digital dollars.
The move toward gold reflects a desire to avoid reliance on US-controlled digital assets and to protect against sudden rule changes or devaluation.

Private Sector as Policy Vehicle

The US government may prefer to let private corporations, such as MicroStrategy, acquire large amounts of Bitcoin or other digital assets first, rather than making direct, public moves that could disrupt markets or provoke global backlash.
For example, Michael Saylor, CEO of MicroStrategy, has advocated for the US to sell its gold reserves and buy Bitcoin, arguing this would undermine adversaries holding gold and strengthen the US position in digital assets.
While the US government has not openly adopted such a strategy or used taxpayer funds to buy Bitcoin, it could later take partial stakes in companies that have accumulated significant digital assets, similar to how it has taken ownership stakes in strategic industries in the past.
This approach allows for gradual, deniable adoption of new financial strategies, with innovation starting in the private sector and being absorbed by the government when it becomes too important to ignore.

Economic Insights

The natural state of the economy is deflationary due to technological progress and increased productivity, which should make goods and services cheaper over time if the money supply remains constant.
However, governments expand the money supply, leading to inflation. This causes asset prices (real estate, stocks, gold, Bitcoin) to rise in nominal terms, not necessarily because they are becoming more valuable, but because the currency is losing value.
When new money enters the system, it seeks out assets to preserve purchasing power, making it appear as though these assets are always increasing in price.
The expansion of stablecoins could allow the US to export inflation globally, as more people and institutions outside the US hold digital dollars and share in the loss of purchasing power.

Likelihood of the Scenario

It is unlikely the US will openly swap all its gold for Bitcoin or forcibly convert its entire debt into stablecoins in a dramatic, public move.
More plausibly, the US will continue to allow private adoption and experimentation with digital assets, absorbing successful innovations into national policy over time.
The scenario described by the Russian adviser aligns with historical US strategies: leveraging financial innovation, spreading risk and inflation globally, and maintaining control over the world’s monetary system through both public and private channels.
While the exact mechanism may differ from the adviser’s prediction, the underlying strategy of using digital assets and stablecoins to manage and devalue US debt is seen as increasingly possible, if not inevitable, given current trends.

Given the discussion about the US potentially using stablecoins and Bitcoin as part of a strategy to manage and devalue its debt, and the broader economic context, here are some thoughtful ways you could consider investing $500 a month to align with these trends:

1. Bitcoin (BTC)

Why? Bitcoin is often described as a "digital gold" and a potential future reserve asset. It is seen as a hedge against inflation and currency devaluation.
How? You can buy Bitcoin directly through reputable exchanges or use platforms that allow you to accumulate Bitcoin gradually, such as Bitcoin rewards credit cards or dollar-cost averaging (buying a fixed dollar amount regularly).
Risk: Bitcoin is volatile, so be prepared for price swings.

2. Stablecoins (e.g., USDC, USDT)

Why? Stablecoins are pegged to the US dollar and backed by assets like US treasuries. Holding stablecoins can give you exposure to the digital dollar ecosystem, which may grow if the US expands its use globally.
How? You can buy stablecoins on crypto exchanges and hold them in a secure wallet.
Note: Stablecoins are less about growth and more about liquidity and participation in the digital dollar system.

3. Diversified Crypto Portfolio

Why? Besides Bitcoin and stablecoins, other cryptocurrencies and blockchain projects may benefit from the growing digital asset ecosystem.
How? Consider allocating a portion of your monthly investment to a mix of established cryptocurrencies.
Risk: Higher risk and volatility.

4. Traditional Assets as a Hedge

Gold: Since many countries are accumulating gold as a safe haven against digital currency risks, investing in gold (physical, ETFs, or mining stocks) can provide balance.
Stocks and Real Estate: These assets tend to appreciate with inflation and can be part of a diversified portfolio.

5. Use Bitcoin Rewards Credit Cards

As mentioned in the discussion, some credit cards offer Bitcoin rewards on everyday spending. This can be a way to accumulate Bitcoin passively while spending normally.

Suggested Monthly Allocation Example:

| Asset Type | Percentage | Amount ($) | |---------------------|------------|------------| | Bitcoin | 50% | 250 | | Stablecoins | 20% | 100 | | Gold or Gold ETFs | 15% | 75 | | Stocks/ETFs | 15% | 75 |

Important Considerations:

Do Your Own Research: Crypto and digital assets carry risks, including regulatory changes and market volatility.
Security: Use secure wallets and reputable exchanges.
Long-Term Perspective: These strategies are more about long-term positioning than quick gains.
Diversification: Don't put all your money into one asset class.

If you want, I can help you draft a more detailed investment plan or explain how to get started with any of these options!