The US debt rate is back at its all-time high. This is an opportunity to take stock of the fiat system and bitcoin.
Trillions of billions
The United States has never borrowed as much money as it does today. The following chart shows that the US government borrows $6 trillion per quarter. Most of this money is used to repay existing debts. But part of it inflates the total debt.
In 2023US government tax revenues amounted to 4,400 billion dollars, compared to $6.1 trillion spent. In other words, the US debt increased by $1.7 trillion that year.
The US government spent last month 567 billion dollars despite tax revenues of only 271 billion. Knowing that two thirds of tax revenues were devoted to interest payments alone.
The average interest rate on US debt is 3.2%. That's around 1000 billion dollars per year. Knowing, let us repeat, that revenues represent only 4,400 billion dollars.
This is how human civilization creates money from debt. A debt which is also accompanied by interest which forces one to go into ever more debt. The fiat system requires by construction that the quantity of money in circulation perpetually increases, under penalty of recurring payment defaults.
In the same way that a cyclist must pedal to avoid falling, the fiat system must constantly increase the stock of debt so that each generation can find enough money in the magma of the economy to repay the principal AND the interest .
Humanity naturally tends towards the most efficient systems. If history can teach us anything, it is that the fiat system is certainly the most efficient monetary system.
This will not please “Austrian” economists who imagine that an absolutely fixed money supply is enough for us all to drive Ferraris. But are they really smarter than humanity? This remains to be proven.
Fiat Ponzi
The fiat system is a ponzi that needs economic growth to avoid ending in hyperinflation. Everything is fine as long as we can extract more and more energy from our little planet.
This is why the debt/GDP ratio is a better indicator than the debt figure alone. However, a country does not have 36 solutions to increase its GDP. You must increase one or more of these parameters:
1) Population.
2) Productivity.
3) Inflation.
Nobody eats 15 baguettes a day. Population growth is the most natural way to increase GDP.
Productivity is output per person. It is directly linked to technology as well as the number of machines. And who says machine, says energy. GDP is therefore closely linked to our capacity to produce energy.
Clearly, a high birth rate does not necessarily go hand in hand with an increase in GDP. Birth rate and availability of natural resources work in tandem.
Furthermore, the increase in productivity is necessary for wages to follow inflation resulting mechanically from the “ponzi fiat”.
In the absence of one of these two ingredients, it is inflation which artificially inflates the GDP figures. This poor growth results in “wages that no longer keep up” with inflation.
This poor growth is fueled by public deficits and real estate bubbles orchestrated by bankers by allowing each new generation to borrow a little more than the previous one (by extending borrowing periods).
Behind bitcoin, the joule
The energy that supports our civilization is not infinite (85% coal, gas and oil). We are in the process of reaching peak oil, an energy which powers 95% of global transport without which there would be no GDP.
There is nuclear power, but to imagine that we will manage to maintain our rate of growth by electrifying absolutely everything is a pipe dream. The fruits from the lower branches have been picked. Replacing oil with electrons will result in lower productivity and therefore inflation. Furthermore, electrifying everything requires immense quantities of metals. In particular the best conductor of all: copper.
Issue :
Unless there is a substitute for copper as well as an energy miracle (nuclear fusion), our standards of living will be confronted with a jaws effect: the physical limits of growth and the interest that governments have in not causing payment defaults.
It is much easier for a government to manage inflation rather than the popular vindictiveness that would result from the reduction in retirement pensions or a default in payment. States cannot repay their debt, nor afford not to repay it. They are condemned to print more and more.
There is no miracle. Bitcoin does not change the laws of physics. Nevertheless, humanity has for the first time a currency existing in absolutely finite quantity, liquid, non-censorable and non-confiscable. Bitcoin is the supreme representation of energy.
Before its invention by Satoshi Nakamoto, you had to be rich and well informed to invest your savings in prestigious real estate, paintings by great masters or promising technologies.
Conversely, bitcoin is accessible to everyone because of its divisibility. Each bitcoin is broken down into 100 million satoshis.
And that's already not bad. Let's not ask too much of Bitcoin. Don’t miss our article: For Saylor, “Bitcoin does not need to replace fiat currency”.
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