USDC's Circle Moves $8.7B to Repo Agreements to Protect Reserves from US Default | Hacker News Reader

USDC's Circle Moves $8.7B to Repo Agreements to Protect Reserves from US Default

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27 pointsharambae71 comments

I'm fairly young and I remember this debt ceiling brinkmanship happening several times in the past , turning out to be a nothingburger. Is this time any different? (Genuine question I'm not American)

No. Both republicans and democrats are heavily invested in the US stock market which would collapse if US defaults.

It's all a show.

Unless they sold already and plan to buy back in after the dip and just before announcing a compromise? It's hardly rocket science...

That's only true if you think they value money more than power. If power is what they care about more, then they could absolutely believe that creating chaos could be more to their advantage. Given the global rise in authoritarianism, and given that in times of trouble people shift toward favoring authoritarians, it's entirely plausible to me that there are political actors who will create the problems that they then claim they will solve.

Isn't that a "king of the ashes" scenario?

Yes? And?

Not necessarily. Take the "heighten the contradictions" types, who believe in either not remediating or even increasing the pain of current societal dysfunctions. They believe that after a blowup and revolution, things will be better.

You see a fair bit of that sort of logic on the right lately. Saletan's "The Corruption of Lindsey Graham" [1] documents the shift nicely, with Graham going from a senator who believed in democracy and inter-party comity to one who says Democrats "hate us" and "want to destroy us", claiming "there’s nothing they won’t do". Or look at Trump calling for the "termination of all rules, regulations, and articles, even those found in the Constitution".

In that context, political actors can claim and might even believe that saving America from the boogeymen might require making things worse before they step in to put things right.

[1] https://specialto.thebulwark.com/p/the-corruption-of-lindsey...

Do you ever wonder why it is that politicians that are, at least nominally, ultimately responsible for signing $6.3 trillion in checks every year only manage to enrich themselves to the tune of a few dozen millions at best? The fry cook at McDonalds gets a larger share of the overall take.

I have two possible explanations. 1) Our politicians are remarkably morally virtuous, and there is virtually no graft and corruption whatsoever. 2) Our politicians are front-men for the actual powers that be and are compensated on a model similar to WWE superstars. In the latter case it's the financial interests of the PTB that will control, not those of the politicians.

Thought experiment: If you were running things would you A) Put your face and name on the power structure or B) Hire goons to do that?

Care to elaborate? What would the effect on the stock market be and why?

Bonds are basically like high-denomination dollar bills with a small "coupon" interest payment stapled to them. The interest can be ignored and then we just treat them like money. As all big financial institutions do. They're the "risk free" place to store money. Which is why Circle (via Blackrock) are holding so many in the first place.

Now, what happens if the US defaults, even technically-defaults (missing just one payment) and all this "money" held by financial institutions is suddenly "not money"? Or "maybe not money"?

I would expect a majority of US banks to be in FDIC resolution the next day. As bank stocks fall off a cliff, they start taking the rest of the economy with them. Things would rapidly outstrip the existing ability of the system to absorb small crises. It would look like Cyprus in 2008.

good explanation

Previously, it was a threat, "Give me what I want or I'll shoot the economy"

Right now it's not clear if McCarthy and the MAGA wing understand what that means.

They know exactly what it means, and they are betting on the electorate having zero long term memory, which, unfortunately, rings quite true in election years.

There is no brinkmanship, people need to realize that. A crashed economy with high gas prices, rampant inflation, etc... in an election year is exactly what the GOP wants when a Democrat is in the White House. Why do you think right-wing media has been screeching about "Biden's crappy economy" for months now while the GOP's only play is to push Biden to enact a 315 page budget that features 271 pages of handouts to the Oil&Gas lobby? They put in what they want, and have the upper hand, because they get to blame it on Biden when it inevitably goes to shit, and look like they tried something and all Biden said was "no" and a crash happens. That play has worked time and time again and it wins elections.

The GOP playbook for as long as I've been alive is "break things when we're in power, but make sure they aren't visibly broken until a Democrat is in power, and then raise hell about how Democrats always break things, so people will vote us back in".

NINJA EDIT: I wish people were educated enough to understand why Washington and his greatest political rival, John Adams, both were in unison when it came to suggesting that a two party system would destroy our country.

Washington: “The alternate domination of one faction over another, sharpened by the spirit of revenge, natural to party dissension, which in different ages and countries has perpetrated the most horrid enormities, is itself a frightful despotism.”

Adams: “There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution.”

Yet, here we are.

...and if that doesn't work, move around the dates and repeat it until your followers believe.

An economic crash under Bush in 2008? No, an economic crash under Obama in 2009.

Pandemic money printing under Trump in 2020? No, pandemic money printing under Biden in 2021.

"The debt is something we should care about!"

Didn't you slap 3 trillion dollars onto the debt in your last admin just to give tax breaks to the rich?

We ARE headed toward a pretty tight election. And the MAGA crowd seem to want conflict for it's own sake (and apparently run the whole republican party).

Market says the odds of default are similar to 2013, and lower than 2011. https://www.msci.com/www/blog-posts/the-cds-market-s-view-on...

Brinkmanship only works if there's a real risk of going over the edge. Is this the roll of the dice that's going to come up snake-eyes? Probably not, but no-one really knows.

Here is the history of debt ceiling changes:

https://en.wikipedia.org/wiki/History_of_the_United_States_d...

I usually see similar sin in both parties. But it's notable that not one Democrat Senator is standing up and demanding e.g. the Green New Deal or disbanding ICE in exchange for their vote on the debt ceiling.

I cannot get over the fact that the US is acting like a "less developed" country.

It's both shocking and unbelievable, and also... entirely predictable.

Shame on all ideologues in congress incapable of compromise.

The original sin was introducing this debt ceiling concept in the first place. Once it existed, it was _inevitably_ going to be used like this.

(A few other countries have some sort of debt limit, but they're generally expressed in terms of fraction of GDP, which is _somewhat_ less problematic, though may have undesirable effects in a financial crisis... Doing it in absolute terms is _obviously_ going to lead to problems, though.)

Yeah, the place to solve this is within Congress. If they want to keep the debt limited, they can control that by passing budgets that fit. If they want a rule to manage that, they can make one.

when was the budget that relast time Congress passed was fiscally sound? 1980?

Doesn't matter. The problem is that passing the budget does not automatically authorize the debt to pay for it. All that needs to happen is welding those two together.

Turn of the century. The Democrats left a balanced budget for George W. Bush but the Republicans decided that meant tax cuts were needed so they could continue campaigning against “big government spending”.

https://www.factcheck.org/2008/02/the-budget-and-deficit-und...

The most significant long-term problems they created were probably exempting rich people from Social Security taxes on more than their first $125k of income and Medicare plan D, both of which created massive time bombs as the boomers headed towards retirement. The longer we delay dealing with those, the harder it’ll be to close the gap — which is exactly what they were counting on to build support for privatization.

Do you mean balanced? The last time the US budget was in surplus was 2001.

But debt can be fiscally sound, as anybody with a mortgage knows.

A healthy mortgage (like any healthy debt) has the expectation of timely repayments and reduces over time. What we see here is the exact opposite to the point debtors are worried about interest default.

> original sin was introducing this debt ceiling concept in the first place

It was for efficiency:

"Between 1788 and 1917, Congress would authorize each bond issue by the United States Treasury by passing a legislative act that approved the issue and the amount.

In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling" [1].

There is no original sin. We just need a law that permanently authorizes the Treasury to borrow as needed to pay for the things the Congress told it to spend on.

[1] https://en.wikipedia.org/wiki/History_of_the_United_States_d...

Having such a permanent law would be constitutionally iffy. The power to borrow money that is part of the US national debt is specifically reserved for Congress, and this is essentially part of what makes the United States a democracy in the first place: only the body made up of the country's elected representatives can tax and borrow in the name of the country. (Other countries have similar restrictions, though not necessarily debt caps; for example, in the UK Parliament must passs a budget each year or the government effectively cannot finance itself and continue operating. This would probably not work well in the USA because Congress has trouble passing budgets reliably.)

You’d include it the language in the budget. When the Congress actually has a choice as to whether or not to spend the money. Doing it after a contract has been issued and the bill is due is asinine.

We are less developed because no other country in the world has this debt ceiling structure (Denmark's is way different and no other country even has one). It is sad that it is used to simply as a tool to cut programs for poor people to give rich people tax breaks.

Biden should just print a $999T coin and make it a non-issue forever. They seem to be favoring the 14th amendment approach but that seems dubious given the current Supreme Court.

I don't actually care what the Supreme Court decides, but I really want the "14th amendment" approach to be argued in court.

If the section of the 14th amendment regarding debts means that all US debt must be paid, I would interpret that to mean," If the debt ceiling holds interest on the debt will be paid and spending must be cut so that no more debt is incurred." Fortunately at the moment yearly debt payments are less than total US gov. income but the cuts would be drastic.

Isn't the 'income' part only a minor detail. Even if there was a shortfall from tax revenue, the US has a huge amount of property it could sell off to pay it's debts. Just the National Parks alone would generate enough revenue for many years of interest payments.

"The solution came during the budget crisis of 2330, when the Brawndo corporation simply bought the Food and Drug Administration and the Federal Communications Commission, enabling them to say, do, and sell anything they wanted"

Rather than selling off real assets, the answer is for the executive to create new money themselves ("mint the coin") rather than continuing to be beholden to the Federal Reserve. As we saw with this last spate of pandemic price inflation, the Federal Reserve's technocratic mandate means they will have to adjust and take money out of circulation to compensate.

so if I'm thinking about this correctly

1. Executive branch mints coins

2. Coins are deposited

3. Functionally this raises the debt ceiling, albeit in a roundabout manner

4. Fed. Reserve tightens monetary policy to compensate for increased circulation of USD

5. Banks are less able to lend cash on a credit basis to private enterprise, since all banks are dependent on Fed. Reserve for cash to back such lending

If it continues long enough wouldn't this eventually mean that the only entity with any credit would be the Federal Government? I'd suspect a weird commercial futures swap market would pop up in lieu of traditional credit lines.

First, you're missing the step between (3) and (4) where the money actually enters the economy, through government spending. And since the government has already publicly committed to that spending, it's basically already priced in. Furthermore it's the exact same effect as if the debt ceiling were just raised as usual, rather than being held up for political chicken kayfabe.

For (5), the ability to issue credit doesn't change. Rather the interest rates do. The current rates are still quite low. They only seem like such a shock because we've had two solid decades of artificially low rates, meaning profligate monetary creation by the Federal Reserve. But rather than being spent purposefully on societal investments, it was just handed to banks to use as they saw fit - causing the "everything bubble" we are suffering today.

My understanding is that money in the economy does not imply the existence of credit, only that money may be exchanged for goods and services.

I'm assuming this is a continuous loop. So over time wouldn't interest rates tend to infinity? Or maybe not, because raising interest rates at some point would be of no utility. If no one is using credit, raising rates doesn't actually change anything.

Securitization and surveillance compel repayment and thus allow for the existence of credit.

Interest rates and the ability to issue credit are mostly orthogonal concepts (interest rates do affect the real and perceived abilities of a debtor to pay back a loan, which does affect creditworthiness).

The sheer majority of "money" in our economy is actually credit/debt. Your bank account balance doesn't indicate a physical pile of money somewhere, rather it's debt the bank owes you. They in turn do things like buy US treasuries which are debt the government owes them, or loan it out as credit card balances which are debt that other consumers owe them. A dollar in your bank account contributes to your own sense of purchasing power AND (for example) the credit card user's purchasing power. Increasing interest rates makes debt less desirable to have, thus decreasing the money supply.

I don't know what you're saying about rates tending towards infinity?

>>Biden should just print a $999T coin and make it a non-issue forever.

Get ready for your $250 cup of coffee, and 20%+ interest rates forever if they do that.

Monetary inflation, consumer price inflation, and asset inflation are each distinct measures.

Monetary inflation that is not spent into the economy will not result in price inflation, or asset inflation for that matter. If the coins are held by the Executive or used to pay off debt held by the Federal Reserve, the new money won't enter the economy. Where things would get "interesting" is if the coins were used to pay off privately held debt (then that money would have to find somewhere else to be parked), but that would directly affect asset prices rather than consumer prices.

I for one think it would be great if the Executive/Legislature took back some monetary creation responsibilities from the Federal Reserve. We've had massive monetary expansion over the past few decades, but due to the way the Federal Reserve creates new money, it has chiefly resulted in asset inflation (hence "line always goes up") while actually squeezing the productive economy.

The real hazard of minting too much new money that sits around is that when a spendthrift Republican gains power, they might spend it all to recreate this "debt ceiling brinkmanship" dynamic for their kayfabe of fiscal responsibility - in their customary way that the effects won't show up until a Democrat is in office.

How would it do that? It is just a coin held at the Federal Reserve to make the debt not go over the "limit". It is just a magic trick on the ledger. It doesn't change the amount of money in circulation as the coin is never spent.

I don't understand how it would change anything about prices. The Federal Reserve already sets the interest rates indpendent of the deficit. Congress already has the ability to adjust the budget and pass laws to change spending, or increase/reduce taxes. The CBO already gives Congress estimates for every law and it's effect on the deficit.

We should not encourage compromise with an entire party that is openly threatening the country's economy for dubious merit, on a subject that they never seem to care about when the head honcho has an R next to their name.

Crypto company makes a big show about how unstable and scary fiat currency is; film at 11.

that's what i thought at first too but it seems to be blackrock?

https://en.wikipedia.org/wiki/BlackRock

> BlackRock, Inc. is an American multi-national investment company based in New York City. Founded in 1988, initially as an enterprise risk management and fixed income institutional asset manager, BlackRock is the world's largest asset manager, with US$8.66 trillion in assets under management as of December 31, 2022.[1] BlackRock operates globally with 70 offices in 30 countries, and clients in 100 countries.[1] BlackRock is the manager of the iShares group of exchange-traded funds, and along with The Vanguard Group and State Street, it is considered to be one of the Big Three index fund managers.[2][3]

Until recently Circle were parking their cash in uninsured deposits [1]. Moving to repos may be about the debt ceiling, but it's more likely that someone hired a treasurer.

[1] https://www.ft.com/content/7c9b2234-c298-4508-b59a-fce49f6bc...

okay but the article says

> The Circle Reserve Fund, managed by global investment management giant BlackRock, added $8.7 billion in overnight repurchase (repo) agreements

i think blackrock already had a treasurer?

also is this jeremy allaire as in coldfusion?

> i think blackrock already had a treasurer?

Circle didn't always use BlackRock. The "someone" is Circle. Maintaining a mix of Treasuries and repos is standard treasury management. I don't see a link between this rebalancing and the debt limit fight.

still seems more noteworthy that blackrock thinks a usa sovereign default is a significant risk than that, like, perry metzger and eric hughes do

> blackrock thinks a usa sovereign default is a significant risk

It's a manageable risk, so it's managed. That's risk management. (Repos also yield more than Treasuries. Again, this probably has nothing to do with the debt limit.)

I'm always bemused by debt ceiling debates. If colossal spending unsustainable by any real resource measure is a moral imperative, then a hyperinflation correction after a scant few generations is also a moral imperative. The universe will correct our hubris with a necessary punishment.

I saw this quote by buffet where he was talking about the top 10 stocks by market cap 40 years ago. I think 4/10 were Japanese companies. Japan has a very high debt to GDP ratio. As of 2023 none of those companies are in the top 10 anymore. The highest ranked Japanese company is in the 50s (Toyota).

I wonder if the US will be in a similar position in 30 years or if the debt to GDP ratio and the USAs spending. I see people say all of the time it doesn't matter because "it's not like household debt" but I fail to see how it doesn't catch up to the US eventually.

Maybe correlation != causation here though and the decline of Japan's dominance in the stock market has nothing to do with their debt to GDP ratio.

When the state's debt growth is unbounded with the feature (not bug) of money printing and suppressed interest rates, eventually that printing and spending outstrips the real economy's ability to extract and utilize resources to generate value; people are unable to produce faster than the currency can inflate. Thus, you then have a net negative economy, where the state's deficits are consuming all newly generated wealth PLUS the wealth generated by previous generations. An inflection point. A country begins to quite literally eat itself alive.

Good platonic philosophy, but it breaks for anyone aware of productivity increases.

Yearly productivity increases are finite. States have demonstrated a remarkable ability to out-debase and out-spend productivity increases, well across history, geography, and cultures.

> where the state's deficits are consuming all newly generated wealth PLUS the wealth generated by previous generations

Why focus solely on the state's deficits? To me, this is exactly the situation we currently have with housing - asset inflation for the past few decades has outstripped real growth, and now housing debt/rent is consuming an ever-growing amount of newly generated wealth.

(The debt/rent payments go to someone else, but the payments on sovereign debt do so as well. The point is they leave the system under discussion)

True, but a big part of this is suppressed interest rates, which are a downstream effect of suppressed bond rates. These two effects hold hands: State largess fuels private sector largess.

How is the stock of a private company linked to the debt of its government? There's no working shown here.

Just a hypothesis based on research that has shown around 100b of covid relief money went into the stock market. Like I said originally, maybe correlation != causation. So there is a link to more money printed by the fed inflating asset prices. If that printing stops due to debt to gdp being too high then that could cause asset prices to stagnate.

https://hbswk.hbs.edu/item/did-pandemic-stimulus-funds-spur-....

> then a hyperinflation correction after a scant few generations is also a moral imperative

This isn't what happens when a reserve unexpectedly currency collapses. The ensuing capital market collapse causes bank failures and depression.

To be clear, we're nowhere close to that. The United States isn't going bankrupt, it's heading towards technical default. Nobody questions its ability to pay, just its willingness to do so on time.

>To be clear, we're nowhere close to that... Nobody questions its ability to pay

This is not a statement that will age well.

> This is not a statement that will age well

I'll stand by it. Ability to pay asks if the U.S. government has the ability to tax its population or incur inflation to meet its domestic-currency denominated debts. Anyone who thinks that's a plausible concern over the next 10 years is nuts. Anyone who is thinking about that as a risk factor over the next 25 years is already extremely comfortable.

Default isn't even on the table...both McCarthy and Biden have both said that

Its just a matter of what deal is made and when

This is a fake crisis! The market freaks out and sells into the fear, then buys on the solution

Meanwhile, institutions do the opposite - they buy into the fear and sell on the solution

Its all engineered once every two years or so to make a fake buying opportunity

Frankly for most people reading HN, you would be better off if there was a true legit crisis, it might actually set in motion legit change that would allow you to buy into the system on better terms

This is a problem the Republicans created. They want to roll back some of his accomplishments and collapse the economy and have it blamed on Biden so of course they’re not going to _say_ they’ll force a default, but that doesn’t mean one won’t happen.

The only guarantee will be them voting to end their hostage crisis.

Blaming one party vs the other in this case seems shortsighted. Either party could have completely removed the debt ceiling. Let's face it, there isn't one already.

The "debt ceiling" as we see it is always going to be increased as needed.

Horseshit. The republican party recently added 3 trillion to the debt. They don't care about the debt. This is just an attempt to be destructive so they can blame it on Biden. You cannot "both sides" one party trying to run the country semi-functionally against the other party hell bent on making things dysfunctional.

I'm not blaming both sides, I am saying there aren't any sides. It's a systemic issue that in recent history has transcended whichever party controls congress or the executive branch.

I think it’s entirely reasonable to blame the only party which threatens to stop paying the bills when they can’t get what they want through the normal legislative process. The Republicans do this because they don’t want to take the heat for actually cutting popular services which they’d have to do if they made changes to the budget. Most of the debt we have now was added by them adding things their voters wanted to the budget, so it’s basically trying to skip out on the check after enjoying dinner.

If Democrats start doing that, I’ll criticize them as well but they don’t.

This is an issue you can truly blame one party for. The Democrats have never threatened to default via it and the Republicans have only done so when a Democrat holds the White House.

It’s hypocritical political brinksmanship of the worst sort that hurts the average American worse than basically any other decision congress can make.

By trying to let the Republicans in Congress off the hook for this you enable them to keep doing it until the idiot faction of their party truly runs us over the cliff one day.

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