The Pennsylvania Plan: The Ultimate Framework for U.S. Debt Management

The Pennsylvania Plan is the current ultimate debt management framework the U.S. is using to address its fiscal and trade twin deficits. It was first proposed by analysts at Deutsche Bank, and its name derives from Pennsylvania Avenue, where the U.S. Treasury is located. Simply put, this plan aims to adjust the structure of U.S. Treasury bond holdings, reduce reliance on foreign capital, and instead rely on domestic capital to carry out debt restructuring.

This approach aligns perfectly with what we previously described as “converting long-term debt to short-term debt, foreign debt to domestic debt, raising funds through stability, and repaying debt through devaluation.” Here, “stability” refers to the role of stablecoins in this process. Deutsche Bank brought this proposal to the table because they judged that the Mar-a-Lago Agreement was unworkable; Trump simply lacked the ability to force other countries to buy U.S. zero-interest-rate bonds. Given the current situation—where even tariff negotiations have stalled—the difficulty of pursuing global debt restructuring is self-evident. The U.S. has virtually no chance of relying on external capital to service its debt.

The U.S. Must Pursue Domestic Debt Restructuring

Once Trump’s tax cut bill is passed, the U.S. deficit will widen further, only eroding overseas confidence in U.S. debt even more. The path to external debt restructuring is effectively blocked, leaving the U.S. with no choice but to pursue domestic debt restructuring.

I am increasingly convinced that China’s economic cycle is ahead of the U.S.’s. The internal debt restructuring we have been undertaking in recent years may well be emulated by the U.S. in the future. Whichever country—China or the U.S.—first resolves both debt restructuring and asset clearance will be the first to enter a healthy development trajectory. Currently, the U.S. has only set the direction for debt restructuring, but the stock market—the asset side—has yet to be cleared. This is the biggest hurdle.

Two Insurmountable Obstacles in U.S. Debt Resolution

If the U.S. is to rely on domestic capital to resolve its debt issues, it must redirect funds from the stock market and cryptocurrency markets into the bond market; otherwise, debt rollover remains a pipe dream. As long as the U.S. stock market remains unsolved, capital will not flow into the bond market, and debt resolution will forever remain a fantasy.

The challenges of debt restructuring in China and the U.S. are entirely different:

  • In China, the biggest issue with debt restructuring is taxation, while the greatest pressure from supply-side reform is employment. The value-added tax (VAT) system requires enterprises to prepay taxes before selling goods, so the manufacturing sector is particularly vulnerable to weak consumption. Whether domestic or foreign consumption shrinks, enterprises must bear this tax burden themselves. Only through direct tax reform can we truly reduce reliance on overseas demand.
  • In the U.S., the biggest obstacle to debt resolution is the dollar, while the primary constraint on stock market correction is consumer spending. After all, the U.S. holds the power to print dollars, allowing it to exploit the rest of the world through the circulation of the currency. Debt resolution would inevitably deal a massive blow to the seigniorage revenue from the dollar. Ultimately, without sacrificing some of the dollar’s privileges, the twin deficits in fiscal and trade balances simply cannot be resolved.

The Crossroads of the Global Economy

Both China and the United States are currently at critical junctures in their structural reforms: China must tackle the tough challenge of tax reform, while the United States must bear the costs of the weakening dollar hegemony. Whichever side breaks through first will dominate the global economic landscape for the next decade.