A quick and easy fix for the US debt problem

It is summer 2020 and media of all types are full of talk about financial crashes and global resets. Yet no one seems to give specifics as to how a reset should occur. 

We have a great idea as to how to about it, but first let's briefly assess the current situation.

Today’s dollar managed to retain just 1 cent of value of $1 USD of 1913 (before the creation of the Federal Reserve).

The US national debt equals $26.6 trillion as of mid-July 2020.

The bulk of physical US cash (more than $1 trillion out of $1.7 trillion) is held in paper banknotes outside of the United States.

The US anti-money laundering legislation (FATCA), among other things, provides mandatory control over all cash transactions above $10,000.

Authorities financial and otherwise set themselves a clear goal of squeezing cash out of everyday transactions to the greatest possible degree. Complete abolition of cash seems hardly feasible, but they wish to reduce its role drastically.  

Today’s currency is fully fiat, so not only will powers that be keep on issuing it, but will speed up the process. 

There are also constant tensions with China and other global troublemakers, so this would be one way to deal with them.

Is it possible to solve all these problems and, even better, in one move? We believe it is.

What we propose is USD revaluation.

That is dropping two zeros from one hundred dollar bill. This measure being just an accounting trick would change nothing economically, but the psychological impact would be significant.

One small step for man, one giant leap for mankind.

Cut off two zeros and return to 1913. Where 5 cents bought a cup of coffee, a gallon of gas was worth 20 cents, an ounce of gold went for $20, a car for $200 and a house for $3,000.

The US will reduce its national debt by about a trillion just by annihilating all physical cash located abroad. The US national debt total will be slashed from $26.5 trillion to $265 billion just with the stroke of a pen. That is it will go to the 1946 level. The same goes for the US debt to China - from $1.1 trillion to some $11 billion. Pocket change. Thus the US government will be able to continue its borrowing binge with no pangs of guilt.

Has any other US President in recent history reduced America's national debt by a factor of 100? After all, Clinton, Obama and other Democrat presidents only let it balloon. And Trump the Republican solves this problem with the stroke of a pen. This is a direct path to a second term in the White House.

The Democrats will loudly protest. They will scream that the revaluation is an accounting gimmick changing nothing. But not because of any serious disagreement with this clever scheme, but because it is done by hated Trump. After all, just one simple step immediately raises “a stable genius” to a level of FDR or Lincoln.

And It’s only the beginning. The former 100-dollar paper bill turns into a 1-dollar metallic coin. Cash transaction limits will go down automatically from $10,000 to just 100 new dollars. The vast majority of transactions will quickly overtake this limit, keeping in mind the inflation growth. In other words, not only the largest but almost all cash transactions will be tightly controlled.

Americans will still have metallic coins for small payments, while paper banknotes will have to be deposited with banks within a mandated time period, say, three days or two weeks. Those who deposit a number of banknotes above a defined amount will be required to prove the origin of their funds.

These measures won’t be hard to enact since the majority of the US population hold very little or no cash at all.

Dealing with foreigners would be even easier. American authorities or banks may or may not accept the proof of legal origin of their deposited cash, independent of its formal correction.

FATCA legislation will provide a passable excuse for such a rejection. Authorities will declare that foreign banks did not “properly” follow anti-money laundering procedures or banknotes will turn out to be superfakes of North Korean, Iranian or Venezuelan origin. So who is to blame? Americans? No. These are all European, Asian or Russian banks, and it is their fault.

Mexican drug cartels, Italian mafia, Chinese shadow banking sector along with the ordinary law-abiding holders of cut paper with images of dead American presidents are cut off immediately. They were dumb enough to consider these candy wrappers real money.

As for copper-nickel coins, the situation is different. The US Mint has been steadily cutting its minting volumes for several years. From 2016 to 2019, annual production volumes decreased from 16 to 11.9 billion pieces. A question re cancellation of the production and circulation of pennies was raised.

Now the situation has changed radically. In June, the Mint produced 1.2 billion pieces. The Mint is expected to produce 1.35 billion new coins monthly in the following months. In 2020, the US Mint is expected to issue 14.2 billion pieces which is almost 20% more compared to 2019 levels. This is approximately the level of 2017, when 14.9 billion pieces were produced.

Authorities seem to be very interested in coins all of a sudden. Which may signal that the decision to revalue had already been made and they are getting ready to enact it. The coins need to be minted, delivered to the Federal Reserve and commercial banks and prepared for use if demand increases.

Revaluation will also ease the pressure on American banks and commodity exchanges as to the supply of physical precious metals. Authorities will stimulate demand for new cash dollars instead of gold by introducing the pseudo-gold standard. After all, they are now a new legal tender. We may get a new global meta craze as a result, even though not in precious metals.  

If gold remains relatively stable, not so silver. The real price of a silver dollar (an ounce of silver) will be about 18 cents under the new conditions. Which may encourage their owners to start paying in silver coins, since their face value is greater than the value of the metal they contain. So we get an influx of silver to the Treasury and from there to the metal exchanges. The hoarders will voluntarily exchange their silver for the ordinary metal.

The beginning of 2020 was already difficult enough, but the second half may prove to be even worse. This is an election year in the USA. So revaluation may be possibly done in the very near future.

One date looks most tempting - October 01, 2020.

This is the beginning of a new fiscal year, when revaluation looks most logical. 1^st of October is also just a month away from the presidential election, thus Trump will deservedly declare his campaign promises fulfilled and America is finally made great again. How many ordinary Americans would object to a cup of coffee for 5 cents and a gallon of gas for 20 cents? Only those few who object to their country’s greatness.

If the authorities set aside a two weeks’ grace period for people to deposit their cash, then the revaluation will happen around September 15 – 16.

There is almost no international travel at the moment which makes it especially convenient to revalue. Almost everyone is at home, so foreigners will not flood US bank accounts with cash.

There is only one minor technical difficulty – American stock exchanges. Two scenarios look most likely, each one has its pros and cons.

In the first case, they would also have to revalue by dropping a pair of zeros off their indices, which would cause a sharp drop in the indices, and this is not acceptable. At the same time, in the conditions of a falling stock market, a decline from, say, 220 to 150 points would look less significant to the public than a drop from 22,000 to 15,000.

The second scenario offers a simpler solution. Stock indices remain unchanged, while the accounting unit may be switched from dollars to cents without any other external changes. Yet in this case a sharp drop in the markets may cause greater harm.

Leaving technical issues aside our proposal grants US authorities solid advantages. The most important thing is that it may be done strictly according to law without anyone objecting to it. A legal act of a sovereign government.

There is no default. There is no devaluation. It is a purely accounting operation.

As a result, Trump remains in the White House for a second term and goes down in history as one of the most outstanding American presidents.

The national debt is reduced 100 times, and may be easily increased again.

The debt level of ordinary Americans also decreases, even though nominally.

Cash usage is kept to a minimum.

Almost all cashless payments remain under strict control of the government, banks and tax authorities.

Pressure on banks and exchanges due to the lack of physical precious metals is reduced.

Foreigners who disagree with US policies are punished and forced to adapt to new conditions.

The final financial and economic crash is yet postponed, as foreign owners of banknotes removed from circulation are forced to concentrate on suddenly arising domestic problems.

Most probably foreign central banks will also revalue to keep currency rate ratios at previous levels.

Therefore global financial and economic reset is done in a calm and orderly manner while chaos and uncertainty are kept at bay.