MarkHarvey on Nostr: The United States is in a debt death spiral.😵💫 This becomes clear when you ...
The United States is in a debt death spiral.😵💫
This becomes clear when you study the situation through the lens of the Debt/GDP ratio. That is, the total public debt divided by productive output of the economy (GDP).
Right now there is just too much debt relative to GDP.
Thinking through the math; in order to lower the Debt/GDP ratio you need to reduce the Debt (numerator), or increase GDP (denominator). Actions that the government/Fed will take to address Debt/GDP are predictable. Looking at both sides of the ratio in detail:
Reduce the Debt:
❌Reduce government spending - It is nearly impossible for governments to do this as it is politically unpopular. Would you vote for the party that promises to take away your social security benefits?
❌Increase taxes to pay down debt - Increasing taxes is not only politically unpopular, but also slows economic growth, lowering the denominator in our equation, GDP, which negates the benefits of increasing taxes in the first place.
Increase GDP:
❌Lower Taxes - This does not make sense. Lowering taxes would stimulate the economy and increase GDP, however, this would reduce tax receipts to the government, which they need to pay down existing debt. Lowering taxes would only make the budget deficit in the US even worse. The gap in the budget would have to be made up by the US taking on more debt.
✔️Stimulus - Stimulus is a politically feasible option. Stimulus is basically money printing. Stimulus comes in two forms; fiscal stimulus from the Treasury via helicopter money(stimulus checks) to citizens, or monetary stimulus from the Fed via quantitative easing. Stimulus does not come for free however, because stimulus is really just printing new units of currency and issuing more debt, which increases the numerator, Debt in the Debt/GDP ratio.
✔️Lower Interest Rates - Lowering interest rates is a politically feasible option. Lower interest rates stimulate the economy, which increases GDP. However, low interest rates only encourage more debt creation as people, attracted by low interest rates, take on additional non productive debt, which further increases Debt in the Debt/GDP ratio.
✔️War - This option is politically possible. War acts as a stimulus to the economy, and increases GDP, however the increase in defense spending would surely be funded by taking on more Debt, again offsetting the increase GDP that would be had from going to war in the first place. War comes with the risk of lowering GDP if the enemy destroys some of your country's productive capacity.
So, there are really no good solutions to lowering Debt/GDP. The United States is in a debt spiral.
Luckily, we can easily predict what actions the government/Fed will pursue: Stimulus, lowering interest rates, and war. It makes sense to prepare accordingly.
These actions will be very inflationary and come with many simulative shocks to the economy. #Bitcoin is the escape hatch for this failing system, and is poised to thrive in type of environment that we are entering.
This becomes clear when you study the situation through the lens of the Debt/GDP ratio. That is, the total public debt divided by productive output of the economy (GDP).
Right now there is just too much debt relative to GDP.
Thinking through the math; in order to lower the Debt/GDP ratio you need to reduce the Debt (numerator), or increase GDP (denominator). Actions that the government/Fed will take to address Debt/GDP are predictable. Looking at both sides of the ratio in detail:
Reduce the Debt:
❌Reduce government spending - It is nearly impossible for governments to do this as it is politically unpopular. Would you vote for the party that promises to take away your social security benefits?
❌Increase taxes to pay down debt - Increasing taxes is not only politically unpopular, but also slows economic growth, lowering the denominator in our equation, GDP, which negates the benefits of increasing taxes in the first place.
Increase GDP:
❌Lower Taxes - This does not make sense. Lowering taxes would stimulate the economy and increase GDP, however, this would reduce tax receipts to the government, which they need to pay down existing debt. Lowering taxes would only make the budget deficit in the US even worse. The gap in the budget would have to be made up by the US taking on more debt.
✔️Stimulus - Stimulus is a politically feasible option. Stimulus is basically money printing. Stimulus comes in two forms; fiscal stimulus from the Treasury via helicopter money(stimulus checks) to citizens, or monetary stimulus from the Fed via quantitative easing. Stimulus does not come for free however, because stimulus is really just printing new units of currency and issuing more debt, which increases the numerator, Debt in the Debt/GDP ratio.
✔️Lower Interest Rates - Lowering interest rates is a politically feasible option. Lower interest rates stimulate the economy, which increases GDP. However, low interest rates only encourage more debt creation as people, attracted by low interest rates, take on additional non productive debt, which further increases Debt in the Debt/GDP ratio.
✔️War - This option is politically possible. War acts as a stimulus to the economy, and increases GDP, however the increase in defense spending would surely be funded by taking on more Debt, again offsetting the increase GDP that would be had from going to war in the first place. War comes with the risk of lowering GDP if the enemy destroys some of your country's productive capacity.
So, there are really no good solutions to lowering Debt/GDP. The United States is in a debt spiral.
Luckily, we can easily predict what actions the government/Fed will pursue: Stimulus, lowering interest rates, and war. It makes sense to prepare accordingly.
These actions will be very inflationary and come with many simulative shocks to the economy. #Bitcoin is the escape hatch for this failing system, and is poised to thrive in type of environment that we are entering.