Ecoinometrics - Is the debt level a systemic risk for the US?
And how the Federal debt story will impact Bitcoin.
There is no denying that the US economy is fuelled by debt. No debt, no liquidity. And no liquidity, no growth. This is the same story go decades.
But are we at the point where the burden of the debt becomes too much? And what does that mean for the valuation of Bitcoin?
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Is the debt level a systemic risk for the US?
Federal debt vs GDP
The United States government needs money, a lot of it. There is money for national defense, for healthcare, for education, for infrastructure projects, for social security and so on. And believe it or not the US needs more money every year than it can generate with taxes, custom duties and the various fees they extract from the economy.
So to cover the difference the Federal government raises debt by issuing various Treasury securities, notes and bonds to investors.
As of this writing the total outstanding Federal debt is more than $31 trillion. For reference the entirety of the US stock market is worth about $40 trillion. So that’s a really impressive number.
Now you might think this is all well and good as long as the US gets more growth out of raising more debt. But the problem is that’s not what is happening.
The debt to GDP ratio is the fraction of the total Federal debt relative to the total economic output (GDP) of the US. This is a pretty interesting metric because it allows us to measure the dynamic between debt and economic growth. You see, normally things are supposed to go like that:
The US raises debt.
The Federal government invest this cash in the economy.
The economic growth is boosted as a result.
Since the 1980s both the US debt and its GDP have grown. The problem is that the debt has grown faster than the GDP.
You can see that on the chart below.
What that means is that as time goes the US gets less bang for its bucks when it creates more debt. Diminishing returns are at play.
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