The Trump Second Administration and the Value of the US Dollar


 
Debt spiral
Interest on US government debt
Debt maturity peaks in 2028
Savings and income measures
Gold monetisation
A Sovereign Wealth Fund
State investment in strategic industries
Soft landing debt devaluation
Changing the term of long dated US Treasuries
The Trump - Miran 50 year treasury plan
US debt restructuring to be partly paid for by Europe
Stablecoins - a tool to sell favorable short-term US treasury debt at low interest
What backs stablecoins?
US stablecoins can use Tether global as a 'bottomless' sump for short duration treasury debt 
Tether's synthetic digital dollar 
A US Gold-backed stablecoin
Plan B - A Gold Backed treasury
A Two Tier US currency - 1. gold/fiat hybrid and 2. fiat
Downsize the dollar as a reserve asset
Disadvantages of being a reserve currency 
The world without a single reserve currency

By Laurie Meadows
First published 5 November 2025 [First edited 23 November 2025]

Defining the problem

The US government deficit is around $1.15 trillion (2025). It borrows from both the world and it's own citizens to cover the deficit, but the constantly accumulating interest payments mean the US will eventually enter a debt spiral; unless the US government finds a way to increase revenues, restructure the debt, and reduce the the role of the US dollar as a reserve asset.

US government debt

Every year, the US government spends $1.15 trillion more than it takes in from taxes, duties, tariffs and so forth. The gap between income (taxes, mostly) and expenditure is filled by selling interest-bearing government (Treasury) iou's. Years of government borrowing has accumulated a total US national debt (2025) of around $38 trillion.

Increase in government debt has recently accelerated, and debt is now accumulating at a rate of nearly $6 billion per day, or roughly $2 trillion a year.

Interest on US government debt

Interest has to be paid to those who hold the Treasury debt. Interest alone come to about $1 trillion a year. The US government pays $2.66 billion per day in interest only on government securities such as Treasuries, bills and bonds.

At the same time, very little outstanding debt, the principle, is ever paid off when the debt's maturity date comes around. But the pigeons are coming home to roost.

The debt ceiling

In 2023 the Fiscal Responsibility Act debt limit was suspended by the Biden administration. The Biden legislation set the reinstatement of the debt limit to January 1 2025 (Biden was still in power). The next day the debt limit was reinstated at $36.1 trillion. Clearly it was going to go past that limit, and as is usual in America, on July 4, 2025 a law was passed raising the limit to $41.1 trillion. As at early November 2025 the US debt is about 38 trillion. If an annualised (2025 year) rate of debt increase (prior to the recent spike) is used, the $41.1 trillion debt limit will be reached about April 2027. At that point, the government will have to raise the debt ceiling yet again.

Debt maturity peaks in 2028

Government debt is issued every year for various lengths of time, and older debt comes up for repayment every year (matures). The debt either has to be paid back at maturity, or new debt issued to cover the amount due. The cumulative maturity of current debt that has to be paid back in a given year will reach a peak at year end 2028, at about $18 trillion. Short term debt (generally of only a few months duration) issued between 2025 and the 2028 peak also has to be added in. When year end 2028 comes around, the $18 trillion will be closer to $20 trillion of debt come due: it must be either paid off in full, or re-financed. It won't be paid off. The US government doesn't have the money. It can't raise taxes to high enough to meet the debt owing. It can't free up enough money by dramatically cutting government spending. The debt must be rolled over.

By late 2028 the annual interest on the debt will be around  $1.3 trillion, eating up roughly 20% of assumed government revenue.

According to the Congressional Budget Office (CBO) January 2025 projections, in 2028 about 47% of government revenue will come from individual taxpayers (and the current individual taxpayer tax concessions end in 2025). Revenue from corporate tax will bring in about 10% of government revenue in 2028 (Trump wants to cut corporate tax rates from the current 21% to 20%, and down to 15% for US domestic manufacturers, at an annual loss of revenue of around $150 billion). By 2028 payroll tax will bring in about 35% of government revenue. Half the payroll tax is paid by the employee and the other half by the employer. Estate duties, Customs and excise makes up the balance. Notice that the individual taxpayer, plus the same taxpayer as an employee - who pays half the payroll tax - ends up bringing in about 64% of the government's revenue in 2028.

One of the underpinnings of assumed government revenue income in 2028 is that wages grow by nominal 3% or so. In other words, the 3% increase in wages brings increase in tax on workers, and therefore increase in government revenue from taxing the citizenry. This is how the debt on the interest due in 2028 is 'only' 20% of government revenue. If the economy is in recession, jobs are cut, and wages don't go up, then the proportion of government revenue needed to pay interest on debt will be somewhat higher than 20%.

But here's the twist: if there is a recession, the government will incur further costs for social support of the unemployed. Where will the extra money come from? Borrowing. Which increases the debt.


Debt spiral  First edited 23 November 2025.
The government already borrows the money required just to pay the interest on accumulated debt! This is a classic debt spiral. Borrowing to pay the interest. Which further increases the debt. Which then increases the interest rate offered to attract buyers and increases the overall amount of interest payable. Which is paid by borrowing even more money...You can see where this is going.

The end point is debt default.

Along the way from here to there, the ever expanding money supply erodes the purchasing power of the dollar. The everyday life of citizens becomes increasingly stressful. And stress is a form of anger. Anger can explode into civil unrest. The US government is acutely aware of this. In a worst case, if clearly justified by events on the ground being beyond state resources, the President can proclaim widespread violent unrest to be “domestic violence” that the state is "unable" to suppress can use the 'Insurrection Act' (i.e. §§ 252–253 in Title 10 of the United States Code). If the President proclaims that widespread violent unrest amounts to an “insurrection” or “domestic violence” that the state is “unable or unwilling” to suppress, the President may send in the Regular Army, federalized Guard, or reservists, irrespective of State governor wishes. (This was done  in 1992 in the Los Angeles riots, when over 60 people were killed, 12,000 people were arrested and rioters did $1 billion of damage.)

The government program of 'borrow and spend' is likely to result in debt default unless drastic action is taken. Successive US governments have always known this 'kicked the can down the road'. That road ends in a brick wall. The Trump administration had to take action. The government has come up with a number of measures to slow and eventually stop the debt spiral and avoid default.

Savings and income measures

Before taking drastic measures to deal with existing debt, Trump has (with one exception) done what he can to cut expenditure and find a little bit of extra income. Not to reduce debt, but to cut off the need for quite so much borrowing as he goes along in his administration.


Spending cuts
Trump has cut some government spending (as at mid October 2024 the US Government 'Doge' initiative has saved an estimated $214 billion from measures such as workforce reduction asset sales, lease cancellation, grant cancellations and so on).

But, as yet, he has not cut military spending, probably because 'defense' spending has made the corporations involved highly profitable. Under the bizarre American political rules these huge and wealthy corporations are allowed to contribute large amounts of money to political campaigns to help 'their' preferred candidates election chances.

Fiscal prudence added 23 November 2025
Unless the government reins in spending, the problem will never be solved. Like most developed countries, the US population is aging. Medical costs are going up, and are predatory in nature. Full time unemployment is likely to rise. There will be more demand on government services. The US cost structure is severely crippled by constant lawfare. They do not have 'no fault' accident compensation schemes, for example. State representatives always demand Federal money for local projects in exchange for their votes in the Senate or Congress. There have only been 4 balanced budgets in the last 60 years (1998 to 2001 inclusive).

The price of a budget deficit is debt and inflation. The price of fiscal prudence in a unreformed system of governance is fewer and poorer government services - political suicide. There is almost no chance for spending cuts in the US political system.


Additional income measures
Trump has increased the amount of the Federal Reserve's operating profits that it must pay to the Treasury general account (an account used for almost anything, no budget approval required).

He has insisted that NATO countries pay a higher percentage of GDP to support their own defense. This is really a sales pitch for American weapons. He will squeeze them for whatever he can get, with his trademark coercive threats. The threat in this case appears to be the threat that he will pull the US out of NATO. Defense industries in Europe and USA are highly lucrative - for shareholders. Even so, while the US defense corporations pay 21% corporate tax, a combination of offshoring the profit, subsidies, and grants generally result in either no tax payable, or a much lower rate than 21% (as low as 10%). The thinking, presumably, is that when defense industries do well there is more employment, and therefore more tax income from personal income tax.

He has imposed tariffs on imports 'because' of trade imbalances. This is mostly just a pretext. Contrary to official statements, US exports and imports (trade flows) are nearly balanced. (Trump never counts the export income pouring into the US from American services that are based overseas - such as banking, insurance, intellectual property. The 'invisibles as some call them.)

By and large the tariffs bring in additional government income and make imports more expensive (ultimately making some local manufactures more price competitive). Tariffs are constantly adjusted down or removed when it becomes apparent they interfere with US manufacturers critical supplies. Tariffs increase the price of goods on the US domestic market, increasing the cost of living, acting like what they really are - a consumption tax on US taxpayers. In principle, increased local manufacturing will create more government revenue; and after some time, tariffs can steadily reduce. But there is theory, and then there is fact. The experiment is running. We'll see if it all shakes out to be a plus or a minus.

Tariffs may fail after the 5th of November 2025 court challenge (the final ruling won't be out until late December or early 2026). But Trump still holds a powerful revenue-gathering card. A gold card.

Gold monetisation

I have covered this in detail here.

In essence, the Trump proposal is to use the 'Gold Reserve Act (1934)' to revalue the US Treasury gold reserves from $42.22 a troy ounce to the current market price of gold. In 1934 the 12 Federal Reserve Banks bought 'certificates' from the Treasury which allowed them to 'hold' Treasury gold (much of it was leased out by the banks). These will be withdrawn and re-issued at current market value. The difference between between the old price of $42.22 and whatever the current market price is must be paid in cash to the US Treasury general fund within 90 days.

At the current (late 2025) price, the 261,500,000 oz of Treasury gold are worth about $11 billion. If we assume the market price of gold plateaus at  $3,500 an ounce, then the US government gold is worth about $904.21 billion. That is a profit of roughly $893 billion. Some of it will be used to buy bitcoin.

Once the target for the bitcoin reserve has been reached, then all future Treasury revenue from gold revaluations will be available to progressively pay down debt.

This certificate swap will cost the 12 Federal Reserve Banks around ~$62–$76 billion each. This is easily accommodated by tapping the Federal Reserve's roughly $3.1 trillion in excess reserves (deposits from banks/public) and the roughly $500 billion in reverse repos (Q3 2025). The newly revalued gold is still held on the Feds books. This is really a enforced profit tax on the big banks, as they are being, in effect, taxed on unrealized gains on gold that is not technically owned by them.

But no one will shed tears. After all, the 'too big to fail' banks make up about 65% of assets in the US banking sector, but make most of the banking sector profits. Combined, these banks have around $3 trillion+ in high quality liquid assets (mostly treasuries and cash). The biggest banks Common Equity Tier 1 (CET1) regulatory capital is nearly 15%, far in excess of the effective Basel 3 requirement of 7% (the most reliable permanently held funds to absorb losses during financial stress - retained earnings, shareholding and other reserves with no repayment obligations). These key banks size and implicit government backing means they can borrow money cheaply from deposits or money markets and trade in financial markets of all kinds using borrowed funds. Their profits are projected to grow by 10–15% over 2025–2026. Commercial real estate risk is now relatively low (5–10% of portfolios).

So long as Central Banks around the world keep buying gold, the price of gold will increase. The fact of the US government re-valuing gold instantly puts a floor under the price, because if the US re-values its gold to market, all the other Central Banks will have to do the same.

If the price of gold continues to rise, the same pulling in of certificates and re-issue can happen and again. If gold price falls, the treasury will not be handing back money to the Fed certificate holders! You can bet on that. In short, it puts a one way ratchet on higher gold prices.

A Sovereign Wealth Fund

'A penny saved is a penny earned'

Income generated from a sovereign wealth fund lifts some of the debt burden from the shoulders of US citizens.

One of the first acts of the new Presidency was to sign a series of executive orders. One of these, 'A Plan For Establishing A United States Sovereign Wealth Fund', ordered the Treasury and Commerce Departments to develop a plan to establish a sovereign wealth fund. While 14 US states, including Texas and Alaska, have their own state level sovereign wealth fund, up until now, the United States as a national whole did not. The details that need to be worked out are: how to fund it in the first place (where is the 'seed money' coming from), how the fund is structured, what are the arrangements for governing the fund, and what are the legal implications.

A Plan For Establishing A United States Sovereign Wealth Fund
EXECUTIVE ORDER
February 3, 2025
By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to promote the long-term financial health and international leadership of the United States, it is hereby ordered:

Section 1.  Policy and Purpose.  It is the policy of the United States to maximize the stewardship of our national wealth for the sole benefit of American citizens. 
To this end, it is in the interest of the American people that the Federal Government establish a sovereign wealth fund to promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish economic security for future generations, and promote United States economic and strategic leadership internationally. <...>
Executive Order 3 February 2025

The wording makes clear that any distribution or benefit from the fund would go only to those who hold citizenship of the United States. The fund is framed as being aimed at producing "double bottom lines", both financial returns and meeting industrial policy goals, especially resource and manufacturing security.

Who controls the sovereign wealth fund?
A 'Sovereign' is a Country or State possessing full authority and control over its internal and external affairs and it's legitimate interests. A sovereign wealth fund is a fund established by the state's representatives that is dedicated to building up money and assets for the use of the state. It is generally understood to be used in the interests of the people of the nation. There is an organisation, the International Forum of Sovereign Wealth Funds (IFSWF) shares best practice with members on governance of a fund, operations and the principles that should be followed to ensure accountability and transparency.

Scott Besant, Secretary of Treasury "Yes sir, I think it's gonna create value and be of great strategic importance."

Funding the fund
There are a number of ideas on how to fund the sovereign wealth fund. The funding target is 2 trillion dollars. Funding proposals run from taxes  - on carbon emissions or financial transactions, through to royalties on minerals, profits from Federal stakes in businesses, borrowing (!!), to transferring state assets such as gold or bitcoin into the fund. Congressional approval will be required in any case.

The most viable options are bitcoin, and gold.

Bitcoin
Several foreign sovereign wealth funds (Norway, UAE, Singapore) include bitcoin in their holdings. Trump is determined to include this digital instance in the US sovereign wealth fund.

In October 2025 a significant amount of bitcoin was seized from an illegal Cambodian bitcoin scam operation. This is likely to be placed in the fund (it may not need congressional approval). This is probably dwarfed by the Trump plan. About $1.2 billion of the $893 billion windfall will be used every year for the next 5 years to buy bitcoin (200,000 bitcoin a year). Once 1 million bitcoin have been bought (about 5% of global supply) and put in 'cold storage' purchases will stop.

Gold
The monetisation of gold concept (discussed above) may create an opportunity for revenue from revaluation of US gold reserves to be used to buy gold for the sovereign fund.
 
State Owned Enterprises
Like Russia, China, too has a sovereign wealth fund, the China Investment Corporation, with $1.3 trillion invested in it. I suspect that the US government is going to learn from Russia and and take a direct stake in it's own strategic industries. At the moment, some of the funds from the Russian sovereign wealth fund go to Russia's strategic military industrial complex in support of the special military operation in the western oblasts. When the issue is settled, the same weapons manufacturers will supply advanced arms to the global market. No doubt the US has similar thoughts.

State investment in strategic industries

Beyond sovereign wealth funds, government stakes in strategic industries can generate a useful income stream. In China, state-owned enterprises in strategic sectors - energy, banking, telecoms - comprise 27% of all companies, but make up 77% of all profits.

The US took a 10% stake in Intel in 2025 as part of investment from the CHIPS and Science Act. In March 2025, Trump signed an executive order to facilitate the production of American critical minerals and rare earths. But not just domestic rare earths. In October, 2025 the US government bought a 10% stake in Canadian rare earths developer Trilogy Metals, and will probably increase the stake by another 7.5% in the future. The government has also taken a 15% stake in MP Materials, a 5% stake in Lithium Americas, and is considering an equity stake in ReElement Technologies.

In 2025 the US government forced Intel corporation to sell 10% of its shareholding to the US government, as part of preserving strategic chip and fabrication components under US control. In early October 2025 the US government applied secondary restrictions stopping anyone buying goods containing computer chips from any supplier whose owner was a named entity under Chinese control. Nexperia, one of the most important chip makers in Europe and beyond is owned by the Chinese Wingtech. Wingtech was placed on the US 'Entity List', a list of people, companies and 'entities' that the US doesn't like. The Netherlands promptly (in effect) seized control of the company and removed the Chinese CEO from his position and installed a Dutch puppet. (China pushed back, prohibiting the export of some chips and finished components made by Nexperia China to its Dutch assembly plants).

The reason for all this is to create a European market for US chips.

Looking to the future, the most impact would come from a joint venture to open up the oil and gas resources of the Arctic Alaskan north slope. This would probably require a joint venture that includes Russia, as Russia has the tech to work in these difficult Arctic conditions (and the icebreakers). Part of the profit could be put in the sovereign wealth fund for a future world beyond cheap oil.

The two tasks of the Trump administration - devaluation and downsized reserves

I believe the major work of the second Trump administration is creating conditions for a 'soft landing' debt devaluation - without too much belt tightening, and without crippling too much economic activity. It won't be easy, and it will be very unpopular. But there is no alternative.

Dollar devaluation is key, and Trump has publicly stated that on balance, devaluation is better than a strong dollar. As I noted in 2022 not only does a low dollar make US government payments on debt easier to bear, but a low dollar will help reduce the status of the US dollar as a reserve currency. A weaker dollar makes government borrowing less effective, and is an automatic feedback mechanism disincentivising poor quality and excessive government spending.

The cause of the US debt crisis is unrestrained spending. The root cause of unrestrained spending is the unrestrained ability of the USA to print money to pay for imports - because the dollar is the dominant global reserve currency. The cure is devaluation of the dollar which will automatically cause a flight to other reserves (including gold) and a strengthening of other global currencies.

The fact that reserve banks around the world are accumulating gold as an asset shows that they know that this is the plan. All the top bankers talk to each other, formally and informally, whether at the Bank of International Settlements meetings (representing 63 major economies), the World Bank (190 member countries), or elsewhere. They must know whats going down, and roughly when.

Tariffs used to blackmail other countries into favorable trade terms for USA help to erode faith in the dollar as a reserve currency. Blocking use of the SWIFT trade payment system and seizing other countries gold reserve assets also helps countries to realise their vulnerability to the US dollar as a reserve. Its a powerful incentive to reduce their dollar holdings. But the most effective method to convince other countries to balance their reserve assets away from the US dollar is devaluation.

And Trump has a rather clever plan to do exactly that.

Devaluation 


The biggest win
The biggest 'win' will come if a part of the existing treasury debt obligation is 'renegotiated' without the government technically defaulting on it. Making the upcoming debt surge 'worth less' without the dollar becoming 'worthless'.

Staying sober
After that the US government will have to discipline itself (as best it can) to spend less, save more, invest in private productive capacity, retain tax incentives for nett profitable real businesses, and become part owners in productive strategic enterprises.

Finally, the US government can - and has - set up a sovereign investment fund that is supposed to be run in a transparent manner, free from political influence.

Changing the term of long dated US Treasuries

Lower long term interest rates
Treasuries interest rates are one of the 'baselines' that banks benchmark against to set the interest rates the banks, in turn, charge to their customers. The interest rate that the Federal Reserve pays commercial banks for their 'excess reserves' held at the Fed is another baseline.

If the economy is otherwise healthy, rising interest rates dampen business borrowing. And if borrowing is for expansion of potentially profitable enterprises, rising rates can dampen economic expansion, missing out on the potential for more jobs and better pay. High interest rates hits ordinary people as well. People who need a loan to meet unexpected costs have to pay more. They have less discretionary spending, consumer spending goes down, leading to loss of business profitability, and job loss. Higher interest rates feed into the cost of mortgage repayments, further crimping consumer spending (although on the plus side, the cost of housing levels off and may even fall). Government tax revenue falls. High long term treasury interest rates are a 'bad situation'.

Long term Treasury interest rates need to come down. First, to stimulate business borrowing. Second, to help devalue the US dollar (by making holding long term US debt unattractive). Third, to stimulate the economy, create jobs, and government increase tax revenue from the expanding - and better paid - taxpayer base.

Even if inflation ramps up, the Fed must never be allowed to raise long term rates to the 6-7% level, because it would likely trigger a steep drop in bond yields, with flow on effects on derivatives, ending up triggering margin calls and an inability to quickly find cash (under 48 hours). If a major dealer fails, the interconnected nature of these deals (including hypothecation) would likely cause a temporary freeze in bank transactions (except in some BRICS countries, ironically). The US government would have to intervene, which means printing a lot more money. This is not helpful to resolving debt.  (According to Grok, a 6 or 7% drop in bonds would, under the yield formulas investors use, cause 7.8 year duration 10 year treasuries price to drop by almost 19%, the 18 year duration 30 year treasury to drop by 45%. Even 2 year treasury bonds with a 1.9 year duration drop by 4.8%. AAA Corporate bonds are also hit hard.) The Federal Reserve is as aware of the danger sudden imposition of high long term bond rates as the government and the major banks are. And the major banks in a sense are the Fed, so the scenario is perhaps hypothetical.

Demand for US dollars needs to be weakened. When demand for US dollars falls, the dollar loses value. And when the dollar loses value, it is less attractive to hold long term US treasury debt compared to gold. The Trump administration is well aware of this dynamic.

The Trump - Miran 50 year treasury plan
As I have laid out in detail elsewhere, Trump is influenced by the idea of unilaterally changing the term duration of long-dated treasuries out to 50 years or even longer. But the interest that buyers will demand for holding long-dated treasuries will keep increasing as the US economy deteriorates and the value of the US dollar erodes. The government interest bill becomes larger and larger. That's the opposite of what Trump wants.

In addition, arbitrary changes to the conditions of existing long bonds would cause a tsunami of court cases. The Trump government knows this. They have come up with another idea that gets round this problem, at least in part.

The idea is quite sophisticated, and 'gels' with the aim of positioning US export businesses to dominate the EU market. The US government concept is linked to the notion that EU countries would 'voluntarily' agree to extend the terms of their existing long dated treasuries to 50 years in return for the US providing a 'defense umbrella' (NATO) to EU governments and in recognition that the US dollar provides them with a globally recognised reserve asset. Providing defense and a reserve asset to 'partner' countries are 'intertwined' according to Stephen Miran (who was senior adviser for economic policy at the U.S. Department of the Treasury during Trump's first term).

Comply or get tariffed
Miran's idea applies only to US "trading partners". Well, if it is tied to a defense umbrella as well, it confirms he means the EU and NATO. Based on Trumps predictable 'playbook', he will threaten to impose even higher tariffs on those EU countries that don't agree to pay for the 'privilege' of using the US dollar as a reserve currency.

What difference will this make to US debt? Well, the European Union (EU) governmental and official institutions—primarily central banks and sovereign entities of the 27 member states - hold $1.2 trillion in US treasuries (a further 7.3 trillion is held by non-governmental foreign investors). As all foreign treasury holders (government and private) make up only about 30% of US public debt, the effect of extending $1.2 trillion in foreign government holdings is useful, but not that great. (I think that the $784.3 billion of US debt held by the government of China is immune from this plan, because they can withhold rare earths if the US 'tries it on' with them. The EU will be the 'mark'.)

Depending on variables in the calculation, interest of about $23 billion a year is paid to the EU by the US. As the US dollar devalues over time the EU will inevitably demand a much higher interest rate before it will agree to 'roll over' maturing debt.

Currently, the average duration date of foreign central banks holding of US treasury reserves is around 5 years (shorter terms make proportional management easier). Roughly $150 billion dollars worth mature every year. What will happen to these maturing long EU treasuries? No way will they agree to just 'roll them over'. They will demand their money back and almost certainly re-invest that money in any of short duration treasuries, Euro bonds, gold, or cash. It is almost a given that they will run to the safe haven of gold.

In truth, the EU can't 'demand' anything. The US can play hardball. A US government default on Treasury debt could destabilize the entire financial system. Everyone knows this, including the EU. As the old saying goes "If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem." The US almost implicitly threaten the 'Samson option' of bringing down the entire western financial system unless the EU agrees to a scheme to restructure existing loans. After all, if the US ends up in debt default (improbable though that is) the EU won't get their money anyway.

This is where the Trump plan to coerce the EU holders into 'voluntarily' convert their treasuries into 50 year - or even 'perpetual' - treasuries comes in.

US debt restructuring to be partly paid for by Europe
A 5 year bond converted to a 50 year bond is a horrible deal. In reality it is a US debt restructuring partly paid for by the Europeans. The US dollar used to pay back the principle in future decades will probably have devalued considerably. These treasuries will be very difficult to sell on the secondary market (unless the US economy is doing stunningly well and the dollar is strengthening year after year). No EU government will buy any more long term US debt under these conditions. The nett effect is that the US ends up paying less and less interest over time. After 10 years, the US would have saved very useful amounts of money.

Such an engineered 'soft' partial default on its long treasuries would reduce confidence in US treasuries in general, and particularly long-dated treasuries. The dollar would presumably weaken. Foreign private buyers of US treasuries would demand a higher interest rate to offset the perceived 'unpredictable US government' risk. The higher long rate could be partially offset by the Federal Reserve buying long treasuries at low interest rates as buyers of last resort.

Many foreign buyers would probably switch away from long treasuries as an asset class. Where would they switch to? Probably to short dated treasuries. The increased demand would result in lower interest rates. Lower short term rates will make American investors unhappy, but needs must. (Estimates of the number of American citizens with short term treasuries vary, but around 10-20 million individuals is a reasonable number).

Maybe foreigners would move to gold, maybe Eurobonds, maybe SCO Development Bank 'green' and infrastructure bonds if they eventuate (which they of course).

5 November - Guy Fawkes night showdown

The 'tariff twist' to the Trump scheme has one weakness - the EU is much more likely to agree if they are threatened with crippling tariffs. The lawfulness of the tariffs is being challenged in the Supreme Court. Oral arguments are set down for 5 November 2025, final court decision comes late 2025 or early 2026. If Trump loses, this part of the 'voluntary' debt forgiveness plan will fall apart.

This whole debt 'term restructure' scheme creates a US stealth blockade of some of the EU reserve assets, very similar in effect to what the US and EU has done to Russian Central Bank reserve assets. The EU will resist agreeing to this. But even if the tariff threat is neutered in the US Supreme Court, the problem of the unpayable US debt doesn't go away. The EU will have to re-negotiate the terms of the US debt simply to keep the trading system stable. The EU will complain, but it will have to put up with it. The NATO General Secretary (Rutte) called Trump "daddy", so maybe the Europeans are of a mind to obey. Anyway, there is still the price of American protection. The American umbrella is not cheap.

And nor is uncontrolled devaluation of the US dollar, and with it, the distortion of the dollar as a reserve asset.

Stablecoins - a tool to sell favorable short-term US treasury debt at low interest

The Trump administration is adamant that there will be no Central Bank digital currency. This is a political decision based on popular concerns over privacy. The GENIUS Act, accepted into US law in July 2025, provides a legal basis for stablecoins in USA. These can only be issued by US entities, and have all the same 'know your customer', 'sanctions compliance', and 'anti-money laundering' requirements that US banks must comply with (ironically, these requirements are pretty much the same as those required for a central bank digital currency).

Under the GENIUS Act stablecoins must be backed by high quality liquid assets. One such asset is short term US treasuries. If long term, high yeild US treasuries become unattractive, perhaps a good part of the same borrowing needs of the US government can be shifted to short term treasuries, end using stablecoins as the tool.

What backs stablecoins?

US stablecoin providers must back their payment tokens 1:1 backed with 'retained reserves' of highly liquid safe assets - cash, very short duration treasury bills and similar easily saleable instruments. The stablecoins must redeemable at par. They cannot be discounted, they cannot be hypothecated. They cannot be used as securities and can't be used as national currency. If you think about it, the opposite is true - national currency is both the security and backing of stablecoins. (Except for stablecoin products that are fully backed by US currency gold, likely a niche case.)

The legislation requires close scrutiny of those who issue stablecoins, and requires strict compliance to regulations. This oversight of private issuers is an important element of 'backing' the safety and reliability of stablecoins. In many respects it is the same as banking regulation. Existing and new coin operators will likely be compliant and licensed some time in 2026.

The GENIUS Act allows anyone complying with the regulations to be approved to issue payment stablecoins; it is not restricted to banks. Big box US retailers are interested because they will receive interest on the US treasuries they keep as reserves, and they can avoid some of the transactions costs imposed by the Visa/Mastercard and American Express networks. However, they can't openly offer inducements for people to sign up for their stablecoin offering.

Tether, a major global player, will enter the US domestic market with a US local treasuries-only product (USAT), as its global products may include gold and other asset classes not permitted by the US regulations, and its global-product consumer safety processes are not regarded as rigorous enough to meet US regulations. Tether's US product expects to be fully US compliant and ready to go some time in late 2025.

A stablecoin - whats in it for you?

The 'value proposition' offered by stablecoins has to make the sign-up costs (your personal details) and the usefulness worth it to you. You have to pay the exchange operator when you 'load up' your stablecoin wallet and when you swap your crypto for physical currency, but the fees are low - conversion fees are about 0.1% to 0.15%. There is also a  transaction fee ('gas' fees) when sending cryto between wallets of buyers and sellers. This pays for the use of the blockchain network. The fees are higher when the blockchain being used is particularly busy - a kind of congestion charge. But fees vary with the particular blockchain that providers are offering. For example, Ethereum tokens like USDC and USDT fees can range from $2 to $20.

But what will a stablecoin do for you? Under the GENIUS Act those offering a stablecoin product aren't allowed to add customer benefits like prizes or loyalty discounts.

The best use case is to avoid high bank fees and delays when buying goods from overseas. But this is not important for most of us.

The benefit for the average person is, on the face of it, limited - probably the ability to pay directly to a person or business without it going through a bank - and reducing the fee for use of banking services. The major credit card companies have used just three major transaction networks, and this restricted network has allowed them to charge banks, merchants, and therefore retail customers, relatively high fees. Stablecoins operate on blockchain 'rails' that are extremely low cost and open to many players. So stable coin payment systems can compete on cost with card issuers on, for example, cellphone-based instant payments.

It seems almost certain that VISA, Mastercard and other major transaction network cards will also issue stablecoins, in part, simply to retain customers.

There is no credit available on stablecoin systems, and so bank-issued credit cards will always be needed. In the longer run, major US banks will end up with a suite of products - US stablecoins, debit cards,and credit cards, all with their own use cases.

But while stablecoins can replace some bank credit and debit card based instant payment services, stablecoins can't replace banks. Everyone needs a credit history if they want to take out a bank loan. That means most people in developed countries must keep a bank account in order to create a 'payment history' with a bank in order to negotiate a loan.

If large volumes of funds are withdrawn from bank term deposits to purchase stablecoins (unlikely, the incentives are just not there), banks will face a shrinking deposit base and may need to increase lending rates to maintain profitability and liquidity. Credit card rates and mortgage costs would likely rise as a result. Paradoxically, if short-term Treasuries offer attractive yields, this could incentivize banks to issue their own stablecoins—backed by those Treasuries—effectively transforming a liability (term deposits) into an asset (Treasury holdings) while retaining customer funds within the banking ecosystem. As you can see, it is in the government's interests for banks to issue stablecoins - the US domestic population then directly funds government overspending. The fact of a voluntary 'citizens subsidy' to Federal Government is hidden from view.

A stablecoin - how does it restructure the government debt?

A stablecoin is just one tool the US government will use in its plan for a slow-motion government debt restructuring, but it is a useful one. The logic is this: the higher the demand at auctions of short term US treasuries, the lower the interest ('coupon') the US government has to pay (those who accept the lowest interest rate get to buy the debt). The more stablecoins used, the more short term treasuries are on issue, the cheaper the re-financing of existing US government debt. I believe this is the major immediate driver. (There are also efficiency benefits for the government.)

The GENIUS Act does not prevent innovative uses by the government. Payment coins are programmable. There is no reason, so far as I can see, why tokenised welfare funds can't be programmed to prevent recipients using the payments intended for food (for example) for non-approved purposes, such as alcohol or vapes.

Increased compliance and efficiency means less government spending on health issues further down the track.

US stablecoins can use Tether global as a 'bottomless' sump for short duration treasury debt

Almost all global stablecoins are US dollar-denominated.The 2025 global market size is around $225 billion and is growing steadily. In 2025 J P Morgan estimated the global stablecoin market could grow to more than $500 billion over the next few years.

At the end of 2023 Tether, the worlds largest stable coin, had $63 billion in short term T-bills and repos. As at 2025, that has increased to about $127 billion, making Tether the 18th largest holder of T-bills in the world - larger even than some large industrial economies such as Germany and South Korea. Tether continues to buy T-bills every quarter to match the expansion of T bill growth. In 2024 Tether earned a return of about 4.1% on its capital investment (short-dated treasury reserve assets) of about  $170 billion.

Curiously, Tether helps people in countries where the American government is pressing its boot on the throat of the local people in the form of so-called 'sanctions' and frozen bank accounts. Stable coins issued by Tether can't be seized or devalued at the whim of the US or any other government. Tether is incorporated in Hong Kong, but has subsidiaries all over the globe, including in the Cayman Islands. The US government is very happy to sell short dated treasuries to Tether, even if it helps citizens of 'naughty' countries survive US government torment.

Even if 'global tether' doesn't operate within the US cryptocurrency ecosystem, the fact that tether's stablecoin is backed largely by short duration treasuries is a massive help to reducing their interest rate. Tether buys US treasuries, drawing dollars from American citizens and global citizens alike. These dollar funds then flow back into the US treasury in return for short term debt. If short term interest rates fall, as is likely in my opinion, demand for Tether's tokens will fall, tokens will be cashed in. If this is part of a broader trend, then the 'Tether effect' will start to fade, and new buyers for US debt will be needed.

The Tether demand for short-term treasuries (USDT product) is quite useful - Tether currently holds over $105 billion in short treasuries (less than 12 month term). Tether is now 17th largest holder of treasuries in the world - holding more than South Korea.  Every $1B USDT minted means $800M - $900M of new short-term treasuries must be bought. If the Tether's post-GENIUS Act US specific product is taken into account, Tether may need an additional $200 billion in treasuries by 2028.

Tether's synthetic digital dollar

Tether is popular in countries where the value of their currency is rapidly devaluing (Turkiye, for example, the lira devalued by around 30-40% over recent years). Selling local currency for US dollars and keeping it on the blockchain preserves purchasing power. Tether, for example, has over 400 million users around the world. Tether is very attractive for the people in Latin America, Africa, and Asia who are 'unbanked' - don't have a bank account. Tether is growing strongly in developing countries of the global south, with around 36 million new Tether wallets being opened in the third quarter of 2023. Urban money exchange centers and kiosks in shopping centers allow quick conversion of local currency to Tether without bank fees and time delays. And to reiterate, without banks. For example, AZA Finance operates in Kenya, Nigeria, Uganda, and Tanzania, converting local currency to Tether, creating a virtual cross border currency, a 'synthetic' digital dollar.

Even the poorest people in the world are helping to fund the US government debt.

A US Gold-backed stablecoin

The GENIUS Act doesn't list gold as an approved reserve asset. But it does list "United States coins and currency". And the US constitution says in Article I, Section 10 "No State shall... make any Thing but gold and silver Coin a Tender in Payment of Debts."

So far (2025) 10 US states have declared gold and silver coins minted in USA as legal tender, not at the face value, but at the current market value for the weight of gold or silver. Coins used as reserve assets for a state stable coin (for example) would have to be deposited with a State insured depository. Interestingly, the GENIUS Act specifically prohibits rehypothecation except in tightly controlled cases.
PROHIBITION ON REHYPOTHECATION.—Reserves described under paragraph (1)(A) may not be pledged, rehypothecated, or reused, except for the purpose of creating liquidity to meet reasonable expectations of requests to redeem payment stablecoins, such that reserves are not used for any other purpose and the permitted payment stablecoin issuer maintains control of such reserves at all times.
Section 4(a)(2):(2)
Gold or silver coins could be used to partially back a payment coin. 'Partially' because some short T-bills would still be needed for liquidity. As gold and silver appreciate, the stablecoin becomes 'over-backed', and excess reserves come into being. At that point, the stablecoin issuer could choose to create more tokens, or leave the surplus reserves as a buffer. The advantage to a state government is that the T-bills provide a small income flow from the interest rate. More importantly, when times are hard and short duration T-bills are in high demand, the drop in T-bill interest income (it could go to zero in extreme cases) the price of gold is likely to rise. The excess reserves can be turned into payment tokens and used to pay for state welfare programs. It is the equivalent of printing money at the state level. The coins would probably never leave the state depository.

In hard times people sell their assets. The state stable coin issuer would be able to accept citizen gold or silver at the current market rate to pay and pay either in fiat dollars or partly gold-backed semi fiat payment stable coins. The stable coins would still be worth a devalued dollar in purchasing power, but they would receive a lot more for them. And as economic conditions improve and the dollar stabilises and gold prices stop rising, or maybe fall a little, the stablecoin holder can use the tokens to buy silver and gold coins once again.

Obviously, this is a very small scale effect, but nevertheless, it would help retain trust in the US dollar, and to a tiny extent obviate the need for more dollars to be printed to fund emergency social programs.

Plan B - A Gold Backed treasury

A gold backed treasury concept has been mooted by economist Judy Shelton. A 50 year treasury ('Treasury Trust Bonds') backed by a given quantity of gold. Presumably aimed at institutional holders, Central Banks, and those who believe gold will always increase in value (because they believe the dollar will continue to inflate). These bonds would be relatively illiquid early in their duration, and as no interest would be paid, the bonds would be priced at a discount by the market (at auction). They would sell for far less than face value, as buyers would expect inflation, so would want an equivalent of interest over time until maturity date payout.  At maturity the bond holders would be either paid out in US dollars at the black ink face value, or the amount of physical gold payable for the face dollar value of the bond, as set at the time of bond issue (for example, it might be 5 grams of gold per $1,000 face value, depending on current gold price, and market expectations of economic conditions in future).

If economic conditions are stable, the dollar has retained its purchasing power, gold has reduced in price as a result, then it makes more sense to cash out in fiat. If the opposite is true, US bond holders will take physical gold at maturity.

Judy Shelton suggested making the first bond issue on July 4, 2026. Trump says this would truly be 'independence day'.

The gold backing the treasuries would of course be US Treasury gold, handled by the Federal reserve via 'gold certificates'. The logical thing to do, and I am sure this is what makes it attractive to Trump, is to set aside gold specifically for a sovereign wealth fund. The gold can never be allowed to be sold overseas, of course, so US law would have to be amended prohibiting the export of gold without a government license.

Foreign bondholders wanting gold for their maturing treasury will be paid out the equivalent gold value - in freshly printed US dollars.

A Two Tier US currency - 1. gold/fiat hybrid and 2. fiat
This creates a 'two tier dollar system'. Simplifying it greatly, the first tier (or 'loop') is a purely domestic one partly linking gold to the dollar via gold-backed treasuries, creating the opportunity for semi-sound money (still requiring fiscally prudent governance).

The second tier (loop) is comprised of dollars used overseas by anyone - not backed by anything. These second tier dollars will tend to devalue, making US exports cheaper for foreign buyers of US goods.

The gold in the US Treasury vaults will have to undergo physical audit before gold-backed notes can be issued. There have been large gold inflows into USA, and significant amounts have left the gold trading market, the COMEX. This might be hypothecated gold being returned to the USA.

Once audits are complete, a tranche of US reserve gold can be placed in a US sovereign wealth fund. This stage done, the way is open for US Treasury gold assets to be revalued, instantly fattening up the Sovereign Wealth Fund Books.

To be honest, I think gold revaluation is all but certain, gold held in a sovereign wealth fund (maybe linked to a stablecoin) is likely; but I doubt a gold-backed treasury note will come into play.


Downsize the dollar as a reserve asset

The dollar is still about 56% of reserve currencies held by banks internationally. The euro is about 20%, the yen around 6%, the GB pound around 5%, the renminbi slightly over 2%, and a basketful of other currencies make up the rest. The USD has been steadily falling from 70% of global foreign exchange reserves in 1999, and until US debt is under control it will continue to fall against other currencies and assets.

The various trading restrictions the west placed on other sovereign countries, coupled with brazen extraterritorial threats on trading partners of those countries has destroyed faith in the US dollar as a long-term reserve asset. The theft of Russian reserve assets, illegal under Bank of International Settlement rules, has further shaken 'faith' in the US dollar and in the Euro, pound and yen. Naturally, other currencies are now being used in trade among the global south, and new terms for trade are being developed in BRICS countries, as well as the SCO, and also bilaterally within greater Eurasian countries. These are tiny steps, but over time they will help the US to shed some of its reserve currency burden.

According to SWIFT data, the dollar is used in around 80% of payments for trade across borders. The SWIFT data is now outdated because Russia, Iran, China, Saudi Arabia, Venuezuela, India, Belarus and other countries either don't use SWIFT at all, or sometimes use other cross-border payment settlement mechanisms. The US dollar is the major international trade currency, and that will be slow to change. But it must change, because the country that is the major reserve currency is disadvantaged.

Disadvantages of being a reserve currency
First, the foreign demand for dollars is not only to pay for trade with the United states, it is also used to buy all manner of assets in other countries (including in tax havens), and is used as 'good' money to settle trade between two non US countries. Dollars are accepted everywhere, and are a universally understood unit of value for other currencies and for monetary metal (gold). The US can supply these 'extra-territorial dollars' because the US treasury is very willing to sell them in the form of treasury notes, bonds, and other debt instruments. People buy treasuries because they are safe and very easy to re-sell (liquid). But as the 'strong' dollar weakens over the long term due to constant 'dollar printing' (causing loss of purchasing power) so the long term interest rate has to go up. The weak dollar not only causes 'inflation', but high interest rates increase the cost of borrowing - whether for house, car, education, medical emergency, living expense credit card debt, or for business purposes.

 Second, the historically 'strong' dollar led to a stampede by US business to overseas factories where goods could be produced cheaply due to low wages in developing countries (amongst other factors). South East Asia became the US manufacturing base, achieving substantial profits from cheaper material costs, cheaper energy, and ultimately, advanced manufacturing techniques. The local US industrial base faded substantially, the service economy became the major employer, and investment in financial products and services  - white collar employment - became much more important. Leading to lower quality jobs, poorer pay, and job insecurity.

Third, the surge of South east Asian goods into US (and other) markets meant that the South East Asian manufacturers had dollars to spare, which ultimately created demand for US treasuries, lowering interest rates. Initial low interest rates fed the US government debt habit, made credit cheap, and as foreign investment poured into housing, property prices inflated.


The world without a single reserve currency
The dominant economic power ends up with the reserve currency because it is doing business all over the globe. Historically, exploiting the resources of the countries it directly or indirectly took over. China is now a dominant power. Its currency is not liquid or widely used by other nations. It will not become a reserve currency in the traditional sense. The euro block has a well traded and liquid currency. The rest of the developed worlds currencies are in demand to the extent they trade, by and large. The 'neutral' currency, which accurately prices all other currencies in relation to itself is gold.

It seems to me that in future there will be multiple payment systems, and gold will be a useful 'reference point' in that. 'Hard' gold that has only a single claim (not paper gold) can easily have loans made against it by using devises such as a 'repo', where money, currency, is lent against gold held in respected international sovereign vaults. The contract allows the the borrower to re-possess the gold at a later date on re-payment of the currency (plus a margin). The gold acts as collateral, but is temporarily 'monetised'. More importantly, excess reserves can be stored as gold and quickly 'alchemised' into currency of choice via global sovereign. There are other payment methods that use central bank to central bank payments across the blockchain (effectively acting as a clearing house). Using each participants own currency, leaving the US dollar out of it.

In other words, the market will decide what currencies to use, which money unit is trustworthy (and for how long), and what the terms of payment are - which could include value for value swaps of physical commodities (barter). The dollar will always be very important, but the very concept of a single reserve currency will start to fade away as countries seek secure and trusted monies and uninterruptible payment methods.

Stockmarket effects on the dollar

The US government has relatively little control here, except that the administration would like it to go up as a 'confidence signal' to the world of USA is "doing well" as Trump often puts it. When foreigners buy US stocks it strengthens the US dollar. Goldman Sachs estimated that non-US investors bought over $22 billion of US stocks in October 2025, a year to October nett total inflow of more than  $316 billion. As at mid 2025, foreigners held $20 trillion in US stocks - a record amount.

Foreign collective exposure to what is a market of about $93 trillion is huge. Individually, maybe not so much.

A significant portion of the capital placed in the US stockmarket is held in ai related businesses whose earnings ability are, as yet, unknown. Current conditions indicate an 'overvalued' stock market. At 23 October 2025:

Based on the dot-com bubble correction, a similar correction today would presumably see a drop in the major market indices (S&P 500, Nasdaq) of about 30-50%. The dot.com bubble pop caused the Nasdaq to drop about 78% from its peak. The trillions wiped out were mainly in those who held tech stocks (tech made up 33% of the S&P index). As at October 2025 AI stocks (dominated by Nvidia) make up 90% of the Capital Expenditure since the start of the stockmarket rally in 2023. AI enablers like Nvidia and Microsoft account for 80% of S&P500 profits and 75% of the gains over the same time period. While these may be substantial gains, the price paid for a share is greatly in excess of earnings. (There is a further 'daisy chain risk' where AI firms buy from each other.)

Conversely, the largest AI companies have deep pockets, and the sunk costs in infrastructure and transformational potential of AI makes it robust. Nevertheless, there are geopolitical risks (extreme purity rare earth availability for high end chips come from China only, and now require a license to import).

The effect on the average US citizen is probably minimal. Around half of ordinary working age Americans don't own shares - except perhaps as part of a retirement saving scheme such as a 401 k or IRA/Keogh and defined-benefit pension schemes. Even then, these plans are usually diversified across stock classes and as well as asset classes, so won't dip much. Some include precious metal holdings. What's more, only about 45-55% of working age Americans actively contribute to a 401 k type account anyway. Those who maintain contribution have  $70,000 to  $100,000 by the time they are in the 55-64 age cohort (nearing retirement). Roughly half this amount is likely to be in stocks, and this cohort would probably feel it more than most.

Many global funds businesses would see a dip in their returns, but again, these are usually highly diversified and some are weighted to sound mining companies - which may increase in value when the froth is blown off the top of the other market sectors.

Foreign investors hold roughly 21% of US equities. Some will sell out on a falling market, but they have limited options for where to put the money. Those looking for stability plus a steady return will probably invest in US treasuries. Some may choose the volatility of bitcoin. If domestic and foreigners sold out heavily (unlikely), it would temporarily push down the value of the US dollar.

This money fleeing the stockmarket into T-bills, probably short term, would push down the interest rates - further lowering the burden of government debt repayment.

A severe stockmarket correction would probably be a nett positive for the US government project to meaningfully slow down the US debt spiral.

Furthermore, historically, investing in good businesses in the sharemarket invariably outperformed investment in financial products like bonds, notes and so forth. The financial markets outperformed the good 'real' businesses only relatively recently. Over the longest run, gold outperformed both. The past doesn't create a chain of effects that predicts tomorrow, but as a general principle, sound businesses will succeed. Shakeouts favor good businesses. They may not expand as a result, but they will solidify the US economic foundations.

As President Xie of China remarked at the November 2025 APEC Summit Meeting "The world is undergoing rapid changes unseen in a century".


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