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A factor driving the trade war (or at minimum indirectly benefiting from it) is the looming refinancing "wall" faced by the US, with approx $14 trillion in federal debt maturing over the next three years.
In January, 10-year Treasury rates hit 4.8% โ these rates would have meant high interest expenses from debt refinancing (compared to the last decade). Cue, the trade war. It's indirectly influencing debt refinancing in 2 ways:
1. Flight to Safety: Heightened economic uncertainty tends to push global investors toward safe haven assets, like US treasuries. And increased demand for Treasuries drives down yields lower
2. Economic Slowdown: prolonged trade conflict can create global economic concerns, causing central banks (incl. the Fed) to reconsider rate hikes & even implement rate cuts, reducing borrowing costs further
And viola, with the chaos of the trade war, the 10-year Treasury yield dropped below 4% today. Lower 10-year yields mean lower future refinancing costs, helping the US gov manage its refinancing wall. But, this is a piece in solving for the massive debt puzzle.
๐๐ถ๐๐๐ผ๐ป๐ฑ๐
There's an alternative โ or parallel โ path to manage interest payments without inciting market chaos: Bitcoin-backed bonds.
In a new Bitcoin Policy Institute report, Andrew Hohn & @Matthew Pines propose "Bitcoin-Enhanced Treasury Bonds." They recommend that 90% of bond proceeds finance standard gov operations or refinance existing debt, & 10% be allocated toward acquiring Bitcoin to establish a Strategic Bitcoin Reserve. By issuing these bonds at a significantly lower interest rateโsuch as 1% compared to current ratesโthe gov can substantially cut its debt-servicing expenses. Furthermore, considering Bitcoinโs historical performance, BitBonds have the potential to considerably reduce or even eliminate the federal debt burden over time.
Adopting Bitcoin-enhanced bonds could thus offer the US a financial advantage, aligning debt management with a new era of fiscal and monetary policy.
