Not Legal Advice… is a monthly column from Zachary Kelman, Cointelegraph’s general counsel. He is a New York-licensed attorney specializing in political, legal and regulatory issues surrounding Bitcoin, digital currencies and blockchain technology.
For two decades, United States presidents kept the American military in Afghanistan to back the fragile local government, tasked with keeping the Taliban at bay. Earlier this month, the U.S. military left, and the Afghan government that the U.S. armed forces supported collapsed like a pitched tent whose pole had been removed. It was obvious to all observers that fundamental change in Afghanistan was always impossible, and American military intelligence must have known this inevitable reality. What is unclear is why, at this particular moment, the U.S. finally pulled out.
The answer might lie in an increasingly powerful, yet often overlooked, force affecting decision-making in Washington, DC: U.S. sovereign debt risk. With $28 trillion of gross national debt, unparalleled money printing and quantitative easing, as well as decades of low interest rates, America has spent most of its monetary ammo in the past decade. This has caused policymakers to break the glass and let loose trillions in emergency spending, frightening America’s sovereign debtholders who suddenly have more reason to fear the once-unthinkable prospect of American sovereign debt collapse. Into this void steps President Joe Biden and the 117th U.S. Congress.
One would think the obvious method of allaying debtholder concerns lies in the balance sheet, by increasing tax rates or decreasing spending. However, tax hikes and budget slashing are tantamount to shutting down an open bar at a house party right when it’s getting fun. The winning political formula here is always the IOU — increasing taxes upsets voters and harms market optimism, while cutting spending causes politicians to fail to deliver on promises and reduces their access to the gravy train. However, much like a clever junkie, the U.S. can always find a way to reassure pesky Treasury holders and debtholders that America is still “good for it.”
Ending the war in Afghanistan may not directly result in a reduced military budget, but it does signal the end of the attitude that caused America’s unrelenting post-9/11 foreign interventionism. By ending the war, America is effectively telling the world that it has ended the codependent relationship contributing to its addiction, without having to outright quit cold turkey.
Likewise, budget hawks allege that the creation of the arguably impossible crypto tax reporting requirements outlined in the amendment to the recent U.S. infrastructure bill will result in the federal government gaining tens of billions of dollars in “lost” revenue without having to increase tax rates. Since raising taxes sends a negative market signal that harms economic stability, and since passing trillions of dollars in spending without so-called “pay-fors” sends a negative signal to wary U.S. debtholders, this affords an opportunity for policymakers to have their cake and eat it too. Threatening to hold the American crypto community upside down and shake them until tens of billions of dollars come out — even if their actual unpaid tax bills are a fraction of that — can provide temporary relief to worried debtholders, who are likely crypto neophytes themselves, without the loathsome burden of actual fiscal responsibility.
Anyone who has had close family or friends suffer from a drug or gambling addiction knows the difference between a real change in an addict’s habits and the superficial promises and decisions they use to disguise their continued addiction. We know how important our support and optimism can be and hold out hope until we are burned a few times as it becomes obvious no fundamental shift has occurred. As the old tools of monetary policy become rusted and worn out and America shifts to a policy of wild quantitative easing and unprecedented public spending, America’s debtholders have good reason to hope the nation has found a way to keep chugging along, especially given the dollar’s central position in the world monetary system. For America’s sake, let’s pray it can remain history’s most creative junkie for years to come — hopefully without having to throw the crypto industry under the bus again.
This article is for general information purposes and is not intended to be and should not be taken as legal advice.
Zachary Kelman serves as general counsel of Cointelegraph. He is a lawyer focusing on the regulatory environment that surrounds digital currency and financial technology, whether that’s obtaining licenses and designing compliance policies to meet newly crafted laws in the Philippines or meeting and crafting policies with Caribbean regulators. Prior to co-founding Kelman PLLC, he managed the compliance program for Coins.ph. Zachary has represented and advised entrepreneurs on best legal practices for their business across the fintech space.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.