It’s not that anyone expects any sort of calamity if the so-called “debt ceiling” is not timely lifted – there is next to impossible anything bad can actually happen. For this purpose it may no longer be qualified as a conventional debt after all. It’s a feature – amusement for a foreign tourist walking across Times Square in New York City staring at the legendary lively debt clock. The real question is still about dollar inflation as the U.S. Debt-to-GDP is approaching 110%. For instance, one of the most indebted nations in the world, Japan, has a Debt-to-GDP ratio of more than 260%, but still relatively nothing out of control happens in the Rising Sun Country.

But speaking about the biggest economy in the world, permanent debt ascension means more debt will be purchased exclusively by the Fed. There is simply no alternative, since even China and Japan, second and third largest economies in the world, cannot generate more comparable revenues to be able to buy out even more Treasuries than now. But let’s get back to the original news.

U.S. Treasury Secretary Janet Yellen delivered a warning to congressional leaders last Wednesday, that the biggest world economy could default on its debt as soon as next month urging the behind-the-scenes discussions about how to raise the debt ceiling. There is no clear end game in sight. And yet that unlikely situation is once again being contemplated. If Congress doesn’t raise the limit on federal borrowing the federal government will most likely run out of cash and extraordinary funding as soon as next month.

Depending on who is doing the research, it is said that the U.S. has raised its debt ceiling (in some form or other) at least 90 times in the 20th century.

In particular, the debt ceiling was raised 74 times from March 1962 to May 2011, including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush, and five times under Barack Obama. In practice, the debt ceiling has never been reduced. Congress has raised the debt ceiling 14 times from 2001 to 2016. The debt ceiling was raised a total of 7 times (total increase of $5365 billion) during Pres. George W. Bush’s eight-year term and it was raised 11 times during President Obama’s eight years in office. Now it becomes clearer that this is more like a routine ceremony than an emergency.

On September 8, 2017, weeks away from the Treasury’s deadline for Congress to act on the debt limit, President Trump signed a three-month budget and debt limit deal that suspended the limit until December 8, 2017. Prior to the deal, investors were worried that a large payment to the Military Retirement Trust Fund due on October 2, 2017, could have triggered a default on government obligations. The debt limit was later reinstated in December 2017 at $20.5 trillion. On February 9, 2018, about a month before the Treasury’s deadline for Congress to act on the debt limit, President Trump signed a budget deal, negotiated by congressional leaders, that included a one-year suspension of the debt limit. That spending and debt limit deal, dubbed the Bipartisan Budget Act of 2018, suspended the debt limit until March 2, 2019. The debt limit was later reinstated in March 2019 at $22 trillion. The result was this Act, which will reinstate the debt limit at the start of August 2021.

The “X Date,” the date when Treasury Secretary Janet Yellen will run out of options to avoid hitting the debt limit if Congress does not act, will occur a couple of weeks after the start of the new budget year on Oct. 1 and may not be reached until as late as the middle of November.

But let’s theoretize what other options exist for the Fed apart from following Japan’s footprints and gradually becoming the sole prime lender for the U.S. Treasury. The following idea may sound exotic nowadays, but

several years ago some underground economists introduced an idea of Amero – the Pan-American currency that would be free from all the well-known greenback’s ailments.

Pic.1. Federal Reserve Balance Sheet (for reference to compare with Pic.2 chart)

The greatest advantage of the U.S. dollar – its dual status as the world’s reserve currency and domestic legal tender at the same time – is now more and more viewed as its greatest risk. The M2 – money supply including accounts – has been skyrocketing mainly because more U.S. debt has been issued requiring more dollars to be available to purchase it. The current ultra low Treasury yields are only possible thanks to the relative equilibrium of Treasuries’ supply and demand, where demand is propelled by abundance of “free” dollars. If the Fed stops expanding M2, then domestic buying of Treasuries will be slowing, causing the Treasury yields to start rising without underlying hike of the Federal funds rate, i.e. Fed’s policy rate. That would be a very dangerous situation, so in the natural absence of new Treasury lenders, the Fed is bound to expand M2 permanently, diluting the value of current USD-based private capitals.

Pic.2. Federal Reserve M2 Money Aggregate

This situation is more serious than many think, and it is the dollar savings dilution – not a hypothetical but very unlikely U.S. default on its debts, something that tabloids love to discuss – that must be scrutinized every time Congress moves the debt ceiling higher.

Hence, the lingering idea of a parallel currency that would be earmarked for American domestic capital protection – now appears more logical. Gossip about the Pan American unified currency of the United States, Canada and Mexico – started nearly two decades ago. The story began with the 2005 Summit of Presidents George W. Bush, Mexico’s Vicente Fox and Canadian Prime Minister Paul Martin in Texas. According to Wikipedia, the North American Unified Currency, “Amero”, was named a currency of the North American Union (USA, Canada, and Mexico) to replace the US dollar, Canadian dollar, and Mexican peso for internal commerce and payments. However, as of now, leaders of all three nations have stated that there are currently no official plans for such a merger.

The Amero idea was suggested by Herbert Grubel, a professor of economics at the Fraser Institute. Grubel has proposed that a combined currency of the three nations would increase trade by reducing the complexity of trades involving more than a single currency and eliminating exchange rate risk. Grubel also noted that the Amero could reduce borrowing costs and eliminate wage arbitrage — the practice of hiring labor in another country with an unfavorable exchange rate in order to take advantage of the cheap resources, by “stealing jobs” from better established labor markets.

Back in 2007, the issue surfaced again, when the leaders of the three countries in a renewed summit gathered in Quebec, Canada. The conversation turned again about integration, that is, the actual creation by 2010 of an analogue of the European Union. In 2020, they talk about the “digital dollar”. According to the Wiki, the Canadian Department of Finance strongly opposed the creation of a common currency with the United States, citing the loss of economic sovereignty. In briefing documents to former Canada’s Minister of Finance Jim Flaherty, investigators concluded:

“A North American common currency would undoubtedly mean for Canada the adoption of the U.S. dollar and U.S. monetary policy. Canada would have to give up its control of domestic inflation and interest rates.” Basically, Canadian fears that with Amero acceptance Canada would become a subject to the U.S. foreign debt liabilities eventually ruined all those aspirations. But who will blame Canadians, and why were the Canadians who launched the Purpose Bitcoin ETF in February 2021 – first global Bitcoin public fund in North America? Perhaps, because the debt and dollar capital dilution issues are very toxic ones indeed!

As Investopedia is rightfully pointing out, the root of any currency trouble stems from a lack of faith in the stability or power of money to serve as an effective store of value or medium of exchange. As soon as consumers stop believing that a currency is fully reliable, that currency – even a reserve one – becomes challenged by other traditional or innovative storages of value, or safe havens if you will.