Varoufakis Warns of Stablecoin ‘Timebomb’
June 26—Former Greek Finance Minister Yanis Varoufakis posted a lengthy article on his website, warning against the “time bomb” represented by the liberalization of stablecoins introduced by the Trump administration’s GENIUS Act. Varoufakis notes the irony that two seemingly opposite groups—radical libertarians and “statist dollar worshippers”—have united on the issue of stablecoins to “maximize the threat of a financial meltdown.” Varoufakis lists “five supersized systemic risks posed by stablecoins”: 1) Moral Hazard; 2) Migrating Deposits; 3) The Doom Loop between Stablecoins and Banks; 4) The Doom Loop between Stablecoins and Securities; and 5) Global Fragility.
These are all risks generated by the volatility of stablecoins and by the volatility of U.S. bonds induced by the stablecoins. As for the reasons why the Trump administration is unleashing what Goya represented with his print, “The Sleep of Reason Produces Monsters,” Varoufakis has the following explanation:
Aside from the obvious self-enrichment motive, the more interesting explanation is that stablecoins fit in nicely with the Trump administration’s goal of shrinking global trade imbalances in a manner consistent with their strategy for “Making America Great Again.” Nothing motivates these people more than the idea that what is good for their bank account is good for America.
Team Trump has no qualms that it aims to devalue the dollar, with a view to shrink America’s trade deficit, yet preserve its dominance by using the threat of tariffs to force allies to dump dollars but refrain from buying rival fiat currencies. Stablecoins are assigned a key role in this plan.
Suppose, for instance, Japan were to be bullied into using a considerable portion of its $1.2 trillion holdings to buy dollar-denominated stablecoins. Trump’s twin aims would be served: First, the dollar’s aggregate supply would rise, devaluing the dollar. Secondly, the stablecoin issuers would use the dollars it receives to buy Treasury bills, thus reducing the U.S. government’s borrowing costs and, in the process, bolster dollar supremacy. In the words of J.D. Vance, a greater stablecoin uptake will be “a force multiplier of our economic might.”
In conclusion, Varoufakis wrote: "To err in the world of financial innovation is human. But to cock things up big time all you need is the U.S. government to promote private stablecoins, to cloak them in the legitimacy that a little regulation-lite can provide, to ban the Fed from deploying the same technology, and to deprive it of the means to clean up the inevitable mess.
“So, yes, be afraid. Be very afraid.”
The late John Hoefle, former chief economist for EIR, on forecasting the rise of the stablecoin/bitcoin bubble had also indicated the ultimate play of the financial oligarchy in this process. The idea, he said, was to grease the slide and encourage fools in these matters, like Donald Trump, to lead their mindless flocks searching for big monetary profit into these traps. Then, once the bubble got large enough, they would bring down the hammer, unleashing central bank digital currency, which unlike these worthless coins, would appear to have the backing of the financial system. Then the stable coins go puff, and as do the suckers who bought into them, he said, while the central bankers reassert their control over zombie system, which decades ago, with the forced collapse of the Bretton Woods in August 1971, became totally unhinged from the real economy—and reality.