The U.S. debt crisis: Would the government ‘engineer' a way to inflate its way out of the $33 trillion debt crisis? - Stephan Livera

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(Kitco News) - Following the Federal Reserve's historical hiking cycle, a major concern going into the year-end is the growing mountain of U.S. national debt, which surpassed $33 trillion this fall, said Stephan Livera, Host of Stephan Livera Podcast and Head of Education at Swan Bitcoin.

With rates at 22-year highs, the big question for many economists is the cost of servicing that debt. According to Goldman Sachs, these costs are already on track to hit a new record in 2025. Last year, the interest expenses on the U.S. debt cost the government $476 billion, or around 2% of the national GDP, to pay interest on its debt. The bank now estimates that interest payments will rise to 3% of GDP in 2024 and 4% by 2030.

"What we are going to see is this continual spiral happen. It's becoming increasingly more as a percentage of the United States GDP every year. And what we will see is a challenging environment for the U.S. government from a funding perspective," Livera told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News, on the sidelines of the Pacific Bitcoin Festival.

On top of that, some key players are starting to sell their holdings of U.S. Treasuries, including China, which will make debt funding harder, Livera pointed out. This week, markets digested the 10-year Treasury yields climbing above 5% for the first time since 2007.

"We've seen China has been dumping U.S. treasuries. The U.S. dollar is still dominant but not as dominant as it once was. And that is going to have some impact in terms of debt funding. How many people will still be keen to buy U.S. government debt when the reality is that debt is being inflated away over time," Livera noted.

The base money growth rate of the U.S. dollar from 1969 to the end of 2022 was around 9%, according to Livera. "If even the least bad currency is inflating at 9% per year on average, people are losing a lot of money without even realizing it. The likely pathway out of this is the state essentially trying to engineer a scenario where they can inflate their way out of the situation," he explained.

Livera warned that the government will do "everything" to mask real inflation figures. For more details on this, watch the video above.

The bond market will not remain unaffected. If investors begin to perceive a disparity between the actual inflation rate and what's being projected, they will seek higher yields for the risks they are shouldering, Livera cautioned.

How Bitcoin changes things

This is where Bitcoin enters the equation, potentially altering the game, Livera pointed out. Despite the U.S. dollar being touted as the "least bad of the fiat currencies," Bitcoin presents a tangible alternative.

Bitcoin's current market value is at around $500 billion, which is minuscule when juxtaposed against the colossal global equities and bond markets, Livera noted. This is why there is tremendous potential for Bitcoin's growth trajectory.

"You can get a very big move coming off of a small number of people because Bitcoin's market is still so small, relatively speaking," he said, highlighting the potential influx of capital from various sources like nation-states, wealth funds, and pension funds.

Livera foresees Bitcoin becoming a normalized savings technology within a decade. A subsequent shift may see it morphing into a widely accepted medium of exchange in the following decades.

"On the 15 to 20-year timeline, that's where we start to see more of an actual medium of exchange usage of Bitcoin," he said. "Two or three decades from now could be where we might see a massive adoption where there'll be people who actually spend Bitcoin day-to-day."

Bitcoin standard: how does debt work?

With Bitcoin more widely adopted, Livera forecasts a return to how things were in the late 1800s during a gold standard. "Bitcoin is going to change the way people operate," he said.

Livera explores a commodity credit system reminiscent of a full-reserve banking approach. To get his outlook on how debt would work under the Bitcoin standard, watch the video above.

Coverage of the Pacific Bitcoin Festival is brought to you by Swan Bitcoin – Swan.com

By

Anna Golubova

For Kitco News

agolubova@kitco.com

www.kitco.com

Michelle Makori

For Kitco News

mmakori@kitco.com

www.kitco.com