Dr. Dulcamara at the US Treasury
March 31—The following article appears in this week’s issue of the EIR Strategic Alert Service (19/26).
The name of Treasury Secretary Scott Bessent’s speechwriter, Sam Lyman, is very similar to Lie-man (it is actually pronounced the same), which better suits his nature. A liar and a quack doctor reminiscent of Donizetti’s Dr. Dulcamara, who sells a fake love potion in L 'elisir d'amore , Lyman authored an article for the Washington Post to promote the Trump administration “funny money” scheme, stablecoins, pulling the ultimate argument from his juggler’s hat: if we don’t do it, China will tear into the US dollar.
Stablecoins are tokens, nominally pegged to U.S. Treasury bills. De facto, they are a piece of worthless digital paper exchanged for the depositor’s money. The Trump administration has allowed a range of commercial entities to issue such tokens and is now fighting to have Congress allow stablecoins to earn interest. Banks are against the move, for obvious reasons: they fear competition and the drying out of deposits. From the standpoint of a national economy, a loss of deposits in the banking system means less bank credit. And since stablecoin issuers are not allowed to lend money, the result is a net loss of bank credit to the economy, and what credit is available for businesses and households will be more expensive.
Sam Lyman does not address this issue, but claims that, if the banks win the fight in Congress, “they will hamper global dollar competitiveness and strengthen China’s digital yuan. Unwittingly, America’s banks are doing Beijing’s bidding.” This is a total travesty. Lyman creates the impression that China is already doing what he would like the U.S. to do, which is not true. What China has launched is a digital yuan, that is a central bank digital currency. This is a real currency, issued by the national government, as opposed to stablecoins which are private currencies.
Furthermore, Lyman insists that “Stablecoins generate substantial yield because they are backed 100 percent by U.S. dollars and Treasury bills.” This is another travesty. A dollar does not generate interest automatically, nor does a Treasury bill, other than the nominal yield on the bond. But customers could earn that yield directly, by buying Treasuries, with no need to exchange them against stablecoins. (A not unimportant aspect of all this is that, different from a bank deposit, once the customer buys stablecoins, he has exchanged his money for a token, and no longer owns the money, until he decides to redeem his token.)
How then, could stablecoins earn interest? Through financial trading, i.e. investing in high-risk securities, derivatives, etc. Stablecoins are traps for the gullible, besides being the perfect recycling tool for organized crime, drug money etc., because not within the control of financial supervisors and law enforcement agencies.
Lyman complains that China is cheering the push “to prohibit stablecoin interest payments,” and argues at length that, with its digital renminbi, the “Communist Party of China” will undermine dollar hegemony.
If the U.S. government is really worried about the strength of the U.S. dollar, it should stop thinking in terms of hegemony, and start thinking in terms of physical economy. Despite his initial promises about bringing back manufacturing to America, President Trump has done very little in that direction. He should have begun by launching a large infrastructure development program (as per FDR’s New Deal) and engaging in joint investments in China’s Belt and Road Initiative. Instead, he listened to his modern-day Dr. Dulcamaras, who sold him a magical potion in digital form.