Treasury Secretary Janey Yellen has said that if new debt is not approved by June 1, the U.S. government could default on its financial obligations, including stopping the payment of interest on Treasury bonds. Treasury Secretary Janey Yellen said the U.S. Government could default on financial obligations if new debt is not approved by June 1,. This includes halting interest payments on Treasury bonds.

This unique process has been a great tool for media-friendly, theatrical politics. In the last three decades, fiscal conservatism has used the vote on raising the debt ceiling to push for a reduction in spending. The frantic deals and the looming deadline make for great TV. But the political risks of dealing with specific budget elements are absent.

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The debt ceiling showdown has real consequences for the traditional financial sector. Most notably, it increases borrowing costs for all. In the long term, repeated standoffs over debt ceilings can have a systemic impact on U.S. standing as a global financial pillar.

Bitcoin is affected by both of these impacts.

Fiscal Responsibility Theater

The majority of serious people view the “showdown” on the debt ceiling as pure politics . The first is that the lawmakers who are purportedly taking an aggressive stance against government spending have already voted for it. Second, the consequences of defaulting on U.S. debt are so unimaginably catastrophic economists can’t imagine that any legislator would follow through with the threat.

This theory is less comforting when you consider that the House Freedom Caucus are a group of far right populists, who believe defaulting on U.S. government debt would be Incredible Based. This reality has led Democrats to seek deals with more moderate Republican factions like House Speaker Kevin McCarthy (R, CA). A politically fragile leader, who needs to protect him from his right-wing.

The U.S. is unlikely to default on its national debt. If it happens, bitcoin’s price will be low on the list of concerns for most people. Janet Yellen downplayed the issue when she called the consequences “severe suffering for American families.” The U.S. default will trigger the equivalent domestic economic shock of a nuclear bombing.

As with the barrage of nuclear weapons, damage would be inflicted in two phases. Initial effects would include the suspension of all government payments, from Social Security to large-scale military contracts. This would result in a sharp, immediate drop in traditional metrics such as GDP [gross national product] and stock markets. Recent Evidence of Strong Correlation between Bitcoin and Tech Equities would also almost certainly Gut bitcoin’s Short-Term Price.

Again, defaulting is a remote possibility. Even a slim chance of a default is having repercussions on the markets. The yields on U.S. Treasury Bonds of 10 and 30 years are already increasing, reflecting the increased risk associated with holding them. The Dow Jones Industrial Average (DJIA) and bitcoin both fell over the last two weeks. However, other market uncertainties make it difficult to link those movements directly to the debt crisis.

The second stage would be more complicated and persistent, and as deadly as invisible radiation left behind after a mushroom clouds drift away.

Welcome to the debt crisis

Bitcoin’s role in global financial infrastructure would likely increase if the U.S. defaulted on its debt. Bitcoin’s role in a hypothetical hedge against a disaster scenario is illustrated by this example: something that’s bad for humans but good for bitcoin.

Bitcoin’s neutral monetary layer may very well be a valuable backstop, simply because it’s unfettered by national debt risks.

First and foremost, a U.S. default will decimate the international appetite to hold U.S. Debt. This would increase the cost of servicing the existing debt and force the U.S. to impose a harsh austerity program. This would then slow down the global economy, putting further downward pressure on bitcoin.

A default by the United States would also accelerate the international effort to separate from the U.S. Dollar as a trading and investment instrument. A default would harm the dollar’s appeal because of its stability and strength. Saudi Arabia, Russia, and China all made recent significant gestures to get the oil trade away from the dollar. A default would make those efforts more real.

The demand for bitcoins as a global trade instrument is likely to increase marginally due to this anxiety.

As the cartoon bunny says, “That’s not it, folks.”

It’s not that I or others disagree with the nominal goal to reduce government spending. The gripe is rather that a semiannual debt ceiling standoff would be a bad way to pursue fiscal responsibility.

This is unacceptable, because deficits and debts are serious problems not only in the U.S., but all over the world. In the U.S. a staggering 7 percent of federal spending is spent on servicing debt. These taxpayer dollars no longer do anything to improve the economy or the lives of the citizens. Every time we have a budget deficit, the debt service costs increase.

This scenario is a part of a much larger case for Bitcoin’s ascendancy in the global trade and reserve instrument space (for the moment, very serious technical limitations are set aside). Bitcoin’s neutral monetary system could be a major backstop in an environment where defaults are on the rise. This is because it does not have to worry about national debt. In all its childish absurdity, the U.S. Debt Limit Showdown highlights how unpredictable and serious this risk is.

Daniel Kuhn is the editor.