Bitcoin critic, Peter Schiff, caused controversy by claiming the U.S. government is running the biggest Ponzi scheme in history. In a tweet on January 16, 2023, Schiff stated, “The US government is running the biggest Ponzi scheme in history.” It’s not a debt ceiling problem, it’s a Ponzi problem. The government is borrowing from new lenders to repay existing lenders.
https://twitter.com/PeterSchiff/status/1615083298551726081?s=20&t=o3ah7tA3BFyVex6sE8frJQ
A Ponzi scheme is a fraudulent investment operation where returns are paid to existing investors from funds contributed by new investors rather than from profit earned. Schiff claims that the U.S. government borrows from new lenders to repay existing lenders, using money it does not have.
However, it’s important to note that a Ponzi scheme is different from the debt ceiling the U.S. government is currently facing. The debt ceiling is a legal limit on the amount of debt that the U.S. government can incur. The U.S. government has reached its debt ceiling and is currently unable to borrow more money, causing a financial crisis.Â
As the currency creator, the U.S. government cannot be forced to default on its debt. It can, however, choose to default, which would be equivalent to economic suicide. The government, as the currency’s creator, does not need to borrow what it creates. The Treasury could simply mint new money to match the deficit, which clearly differentiates it from a basic Ponzi scheme.
One major point of contention is the government’s use of inflation to pay off its debt. Inflation erodes the currency’s value over time, which means that the government is effectively paying off its debt with cheaper money. This can be seen as a form of “robbing Peter to pay Paul,” as it transfers wealth from those holding cash and fixed-income assets to the government and its creditors.
It’s important to differentiate between a Ponzi scheme and the debt ceiling the U.S. government is currently facing. While Schiff’s claim may be attention-grabbing, it is not entirely accurate. The U.S. government is not running a Ponzi scheme but, rather, is facing a debt ceiling problem.
Peter Schiff’s claim that the US government is running a Ponzi scheme is not entirely accurate. The U.S. government, as the currency creator, cannot be forced to default on its debt, and it can choose to default, which would be equivalent to economic suicide. As the currency’s creator, the government has no need to borrow what it creates. The Treasury could simply mint new money to match the deficit instead of selling bonds to match it.
