Last month, Coendesk argued in detail how bond market activity is challenging the notion that the United States government is good for money, asking questions about the “long data” or the illusion of fiscal stability.
Now, multimillion -dollar technology entrepreneur Elon Musk has given the alarm in X through his [perhaps rightful] Diatribe against the great and beautiful tax bill of President Donald Trump, which is projected to drive the fiscal deficit in $ 2.4 billion for ten years.
That is happening at a time when the growing fiscal concern is already moving the investors of US assets and alternatives, such as Bitcoin and Gold. From fiscal year 2024, the fiscal deficit was $ 1.8 billion, and as of today, the national debt is already at $ 36 billion, and annual interest payments amount to $ 1.13 billion.
Someone as influential and popular as musk who takes public fiscal concerns could result in two things: first, they could accelerate the change of the assets of the United States. Is it simply a coincidence that at a time like this, the adoption of the Bitcoin corporate treasure and other tokens, including XRP, has chosen the rhythm?
Secondly, it is likely that investors concerned about government fiscal health demand higher performance adjusted to inflation to provide money to the government. Therefore, wait for yields to remain sticky on the upper side, which further complicates the fiscal situation and economic growth.
The government is in bankruptcy, at least in theory
Bitcoin
Believers have been warning of this day for a long time. Paraphrasing a former Coendesk employee, “cryptography may not have all the right answers, but ask correct questions.”
The popular narrative has been that the United States government is in bankruptcy, and the dollar goes to a collapse. According to Musk, the government risks bankruptcy if fiscal prudence is not restored.
In theory, the government has been bankrupt for decades. That is evident by repeated debt roof takeoff over the years.
The Congress established the first federal debt limit at $ 45 billion in 1939, giving the treasure a wide discretion on the use of loan instruments provided that the total debt does not exceed the self -imposed limit.
Since then, the ceiling has been beaten and raised repeatedly, a sign of fiscal crisis and, in many ways, of hiding in bankruptcy. From 2025, the debt limit is $ 36 billion! That is right trillion.
This brings me a joke from an Indian comedian on government officials that artificially increase the danger brand during floods, to create the illusion of control and normality.
Similarly, repeatedly increasing debt roof has been an attempt to mask the country’s tax bankruptcy.
The debt -based fiduciary system can break
For at least a decade, Bitcoin believers have been saying that the monetary system is broken and that we need to fix the “money”, essentially the debt -based fiduciary money.
And they may be right, since the government’s debt / GDP relations throughout the world have increased 100%, a sign that the capacity of debt money based on debt to generate growth has collapsed.
A blog post in Mises Institute described the debt -based fiduciary money (paper money with a government label backed by nothing) as follows:
“The Government and the powerful bankers established a system in 1913 that usually works like this: every dollar of the monetary base (or” narrow money “or” high power money “) arises with an increase one by one in the public debt, which is due collectively to taxpayers. Then, private banks use that base to create more dollars (in” broad money “) that arises with a unique increase in private debt in private debt.
“Go the other way, if people in the private sector once paid all their debts, and the federal government paid all their bond holders, then the offer of US dollars would be extinguished practically.”
“This is the meaning in which our Fiat-Money system, fractional-renerve uses” debt-based money. “Although market prices are flexible and can react to deflation much better than most people realize, it is true that our system is tragically absurd.”
A debt / GDP ratio above 100% means that total government debt exceeds the annual economic production of the nation. In such a situation, for every additional dollar taken by the government and invested in the economy, the resulting impact (multiplier effect) is lower than one dollar, that is, the performance of the additional lend funds decreases.
To explain in the context of the decreasing yield/utility law, the marginal utility of each additional dollar spent generating growth is negative.
It also means that additional debt no longer generates productive economic growth and can actually be harmful. Imagine sticking from your favorite ice cream without rest (just when governments are atibor from money borrowed for decades); Finally, at some point, you will vomit. That’s where we are in terms of fiscal finance and debt / GDP relations in the United States and other advanced nations.
What follows?
Economist Russel Napier, known for his experience in debt and fiscal policy, has discussed several steps that governments will probably take to reduce debt / GDP relations.
These include nominal GDP fastestry engineering through a structural level of inflation, which is what many countries, including the United States and the United Kingdom, did to inflate the debt after World War II.
Allowing moderate inflation to erosion the real value of the debt, thus reducing debt service and reducing the relationship, could boost the demand for assets such as gold and bitcoin.
Other steps could include currency devaluation and implement capital controls and financial repression, all of which could be a good omen for alternative investments, such as cryptocurrencies.
In a lighter note, reducing fiscal spending, a strategy initially promoted by Trump, could be the only way to re -route the economy.
Consider this medical analogy.
When your body is exposed to excess blood sugar for a prolonged period, cells tend to develop insulin resistance, which leads to type 2 diabetes. Doctors often recommend fasting to help restore insulin sensitivity.
Similarly, stopping fiscal spending could be the only way to significantly reduce the debt / GDP ratio below 100%, thus restoring the effectiveness of the debt -based fiduciary system to generate growth.
That said, what happens if governments fail? The Fiat System based on debt may have really ended, intensifying the search for alternatives, with blockchain and crypt as potential options.
Let’s see how things develop.
