When the United States has a large amount of debt, high interest rates and a budget deficit, there can be no hope of paying it at all.
This is an editorial opinion 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 Voss On podcasts, especially when I’m getting ready for a heavy load or something. His pointless talk of ties makes my blood flow and my mind focus. But when I send stuff like this to my less finance-minded buddies, they often have a hard time understanding what he’s talking about.
Here is my attempt at some potentially simplistic math to explain the debt spiral.
US federal debt
As of October 13, 2022, the United States had $31,144,952,729,330.20 of outstanding debt. This is updated daily by treasury. To make the math simpler, let’s call it $30 trillion. After all, what’s another trillion, more or less?
That means an annual interest payment of $621 billion on debt this year. The Washington Post It is estimated at $580 billion. Let’s divide the difference and call it $600 billion.
If you’re paying attention, the Fed is raising interest rates aggressively and the market is just as aggressively raising the yield on government debt.. Every basis point added to the average US government debt rate would add about $3 billion in additional interest expense. This is if the debt remains at its current level.
Unfortunately this will not happen. Currently, annual budget shortage It sits at $946 billion a year with no signs of going zero. Since that is the case, the US government will not have to issue more debt at the rate of nearly an additional trillion dollars annually, but rather will do so while interest rates are rising rapidly.
The higher the interest rates, the higher the interest on the debt to be paid. The higher the interest on the debt to be repaid, the greater the deficit. The greater the deficit, the more debt must be issued. Issuing more debt, more interest on debt. Even if the Fed cuts interest rates to zero, debt will continue to grow at a compound rate due to the nature of the deficit.
Even more disturbing is the graph above, which depicts debt as a percentage of GDP. The upward slope of the line since the mid-1980s indicates that debt has been growing faster than the economy for decades.
The nature of the permanent budget deficit ensures that this situation is inevitable; The Fed is speeding it up right now. Debt generates more debt as long as there is a deficit.
We hope you get it now. This is what Greg Voss means in the debt spiral. The debt is never paid off; It keeps rolling, growing at a compound rate. On this path, you will begin to accelerate.
Bitcoin is protection
Based on math alone, the Fed cannot keep raising interest rates any longer, nor keep them high because interest on debt will become completely unmanageable. There is a lot to be said about the Fed Pivot System and when they will decide to taper off another interest rate cut. When will they actually do that? I’m not sure, but the Fed will eventually have to cut rates again to try to slow the bleeding. And when that happens, the rise in bitcoin prices will melt your face.
While I’m no longer particularly interested in price – Unlike some I am concerned that ordinary people will be able to jump on the Bitcoin life raft before it goes off into space.
Absolute scarcity is an absolute necessity in a world without financial scarcity. Be a good friend: Help people understand this concept, because most of them do not understand what is coming.
This is a guest post by Mickey Kos. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. Or Bitcoin Magazine.
The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.