The well-known cryptocurrency YouTuber "Brain Brother" recently released a video titled "Discussing Whether the US Dollar and US Debt Are a Ponzi Scheme?". In the video, Brain Brother explores the operating mechanisms of the US dollar and US debt in a straightforward manner, and analyzes whether they have the characteristics of a Ponzi scheme, sparking discussion in the community. On the other hand, researcher Yu Zhe'an has put forward several relevant facts and expressed his personal views on the points made in the video. He stated that using the logic of private debt to analyze national debt is an incorrect analysis method.
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ToggleWhat is US national debt?
US national debt is a type of "IOU" issued by the US government to raise funds for expenditures on infrastructure, social welfare, and national defense. In simple terms, it is the government borrowing money from investors by issuing national debt, with a promise to repay the principal and interest in the future. US national debt is divided into different maturities, with short-term being Treasury Bills, medium-term being Treasury Notes, and long-term being Treasury Bonds.
US national debt is generally considered a stable and safe investment, as it is backed by the government, and is favored by countries and major financial institutions around the world. The market for US national debt is vast and it is an important asset in the international financial market.
Is the US dollar and US debt a Ponzi scheme or a financial reality?
Brain Brother stated that the US debt-to-GDP ratio is 123%, meaning that the entire 330 million US population would need to forgo food and drink for a year to repay the debt. Although the US government has raised the debt ceiling multiple times, the US continues to borrow every year, which he believes is a "borrow new to pay old" Ponzi scheme model that could ultimately lead to a debt default and a global financial crisis.
Brain Brother criticized that the US constantly prints money to support the government, forming a closed loop, but this unlimited borrowing model will hollow out the purchasing power of the people, with inflation constantly eroding asset values and making the general public poorer and poorer.
He further said that even if the yield and coupon rate of US debt are consistent, it does not mean there is no risk, especially given the US's continued borrowing and the growing national debt. He also emphasized that these seemingly stable data should be watched out for, as the US's fiscal situation is worrying and may ultimately lead to an economic crisis.
Is it a mistake to view public debt from the perspective of private debt?
Regarding Brain Brother's claim about the US debt-to-GDP ratio, Yu Zhe'an gave the example of Japan's debt exceeding 250% of GDP without a fiscal collapse, and stated that relying solely on the debt-to-GDP ratio to assess a country's debt health is incomplete. He added that viewing public debt from the perspective of private debt is wrong. The public sector is different from the private sector, as it does not determine its expenditures based on existing income, but rather arranges expenditures first and then seeks revenue.
He emphasized that fiscal deficits are not necessarily a problem, as the government has three ways to repay debt:
- Achieving economic growth that exceeds the real interest rate
- Allowing the inflation rate to be higher than the nominal interest rate
- Having fiscal revenue exceed expenditure.
Fiscal revenue and expenditure have only accounted for about 30% to 40% of the US's past debt repayment, with the proportion of debt repayment through economic growth exceeding 50%. The government can increase the demand for currency in the entire society through economic growth and other means to offset the new money supply, which is also a way to repay debt.
Is Inflation Exploitation or Redistribution?
Brain Brother pointed out that inflation not only empties people's savings, but also exacerbates the wealth gap. However, Yu Zhe'an proposed that inflation is actually a "resource redistribution" mechanism. Banks create purchasing power through credit, supporting those who can fully utilize resources, so that resources gradually shift to the hands of those who use them more effectively. Although this implicit wealth transfer is detrimental to some, it has value for the overall allocation of resources in the economic system.
The Mechanism Behind US Debt: Facilitating Borrowing or Stabilizing the Economy?
Brain Brother criticized the US for frequently raising the debt ceiling, which has soared from $23 trillion in 2019 to $35 trillion by 2024, with the debt ceiling being raised 78 times. He believes this is a "bottomless pit" designed by the US Treasury to facilitate borrowing.
However, Yu Zhe'an stated that the establishment of the debt ceiling before 1917 required congressional approval for each borrowing, which was too cumbersome and limited the government's ability to respond to economic fluctuations. Therefore, a "adjustable" debt ceiling was created. Adjusting the ceiling in a timely manner according to economic needs is to stabilize the economy, not to have no constraints as Brain Brother said.
The US Dollar as the Global Financial Hegemon: Is the Unlimited "Printing Press" a Risk?
Brain Brother also cited the saying "the US can't fall, it has a printing press" and related data to indicate that the changes in US Treasury debt held by the Federal Reserve are almost consistent with the government's issuance, forming an economic closed loop: the US government spends and borrows, and when it can't pay, the central bank helps print money, which will eventually have a serious impact on the global economy.
However, Yu Zhe'an said that currency is just a system, a resource allocation mechanism, and it has a lifespan. If it becomes unusable, it can be replaced by the next version. Changing the system will have costs, but it should not be seen as the end of the world.
He further stated that the US accounts for about 20% of global GDP, but its share in global cross-border financing and trade settlement is as high as 50%, making the status of the US dollar difficult to shake. He emphasized that in this context, US Treasuries have actually become a stabilizing pillar in the global financial system. Even as US national debt rises year by year, the US still has the power to print money and the global currency status, and these advantages allow US Treasuries to maintain long-term market support and financial stability.
In summary, Brain Brother believes that the US borrowing model and the US dollar printing mechanism may be a bottomless pit trap that will eventually trigger a crisis. While Yu Zhe'an provides a more macro perspective, arguing that the nature of national debt is different from private debt, and the logic of public sector operation is different from private enterprises. Government debt can be stabilized through economic growth, inflation, and revenue-expenditure balance. The two perspectives remind us that we need to deeply understand different positions on economic issues in order to take a more macro view of US debt and its global impact.
