Debt spiral leads to Bitcoin adoption – Bitcoin Magazine
This is an opinion editorial by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before transferring to the finance corps.
I love listening to Greg Foss on podcasts, especially when I’m getting ready for a heavy deadlift or something. His no-nonsense talk about ties just gets my blood flowing and my mind focused. But when I send stuff like this to my less financially interested buddies, they often have trouble understanding what he’s talking about.
Here’s my attempt at some potentially simplistic math to explain the debt spiral.
“What Is The National Debt” from the US Treasury Department
US federal debt
As of October 13, 2022, the United States has $31,144,952,729,330.20 worth of debt outstanding. This is updated daily by the Treasury. To make the math a little easier, let’s just call it $30 trillion. After all, what’s another trillion, give or take?
Treasury average interest rates as of September 30, 2022
This means an annual interest payment of 621 billion dollars on the debt this year. The Washington Post estimates $580 billion. Let’s split the difference and call it $600 billion.
If you’ve been paying attention, the Federal Reserve is aggressively raising interest rates, and the market is just as aggressive in bidding up the yield on government debt. Each basis point added to the average interest rate on US government debt will add approx. 3 billion dollars in additional interest expenses. That is if the debt stays at today’s level.
Unfortunately, that won’t happen. Currently, the annual budget shortfall is $946 billion per year, with no sign of ever going to zero. This being the case, not only will the US government have to issue more debt at a rate of nearly $1 trillion more per year, it will do so while interest rates are rising rapidly.
The higher interest rates go, the more interest on the debt will be required to be paid. The more interest on the debt to be paid, the bigger the deficit. The larger the deficit, the more debt must be issued. More debt issued, more interest on debt. Even if the Fed reset interest rates to zero, the debt would continue to grow at a compound rate due to the nature of the deficit.
“What Is The National Debt” from the US Treasury Department
Even more worrying is the graph above which shows the debt as a percentage of gross domestic product. The upward slope of the line since the mid-1980s suggests that debt has been growing faster than the economy for decades.
The nature of the perpetual budget deficit ensures that this situation is an inevitability; The Fed is only accelerating it at the moment. Debt begets more debt as long as the deficit exists.
Hopefully you get it now. This is what Greg Foss means by a debt spiral. The debt is never actually paid off; it just keeps getting rolled over, growing at a compound rate. On this track, it will begin to accelerate.
Bitcoin is protection
Based on math alone, the Federal Reserve cannot continue to raise interest rates much longer, nor keep them that high because the interest rates on the debt will become completely unmanageable. There is a lot to say about a Fed Pivot and when they will decide to taper to lower rates again. When will they actually do it? I’m not sure, but the Fed will eventually have to cut rates back to try to stop the bleeding. And when it does, the rally that the bitcoin price will have is going to melt your face.
While I’m not particularly interested in the price anymore – unlike some – I’m keen for ordinary people to be able to jump on the bitcoin life raft before it shoots off into space.
Absolute scarcity is an absolute imperative in a world without money scarcity. Be a good friend: help people understand this concept, because most people don’t understand what’s coming.
This is a guest post by Mickey Koss. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
