The United States government has been generating the economic growth of the last decade artificially. This relatively well-known fact was made abundantly clear through a simple analysis of debt vs. Gross Domestic Product (GDP). Should investors move to outside sources like Bitcoin or gold to prepare for a crash?
In the last decade the US added nearly $11 trillion in debt while growing GDP by only $7 trillion.
In other words: Every $1 in growth came with over $1.5 in additional debt. pic.twitter.com/mandXOZYPB
— Sven Henrich (@NorthmanTrader) January 1, 2020
The numbers are simple. The US GDP has grown dramatically over the past decade to the tune of $7 trillion. This number sounds extremely impressive, given the decline during the 2008 crisis.
However, the federal deficit increased by $11 trillion during that same time period. The deficit was largely due to extremely liberal Federal policies of Quantitative Easing (QE) and stimulus deals.
As the funds were pumped into the economy to produce liquidity, growth resulted. The difficulty is the return on investment (ROI). Each $1 of growth in the US economy came at a cost of $1.50 of Federal debt.
The fiscal policy of spending to grow crosses multiple generations and both political parties. During the Reagan era, each $1 of debt produced approximately $4 of growth. This figure has steadily declined during the past 40 years.
The Federal Reserve (Fed), tasked with keeping the economy inorganically liquid, has run with this policy structure. Massive amounts of debt have ensured that the economy would run well. While the pains aren’t felt yet, the price tag will eventually be paid.
The loss of stability in the global economy has already signaled that the party may be coming to a screeching halt. The global shift away from the USD as the reserve currency also lends credence to the problem.
At the core, while growth may occur, simple math indicates that the US economy has been in a hidden recession. Each dollar of growth has left the US government an additional $.50 in debt—a constant loss.
Eventually, the only possible answer to the removal of debt is for the US government to devalue its currency. This would allow the Fed to pay off the debt, and stop the bleeding from interest, but would result in massive inflation.
Bitcoin and a Store of Value
The general public remains blissfully unaware of the tidal wave of pain that is approaching. However, many have already signaled the need for inflation-safe places to store value.
Bitcoin, gold, and other precious metals all show inflation resistance because their value is decoupled from Fed policies. Owning Bitcoin allows investors to move funds ‘outside’ of the economic machine. There, funds can be protected from the coming onslaught.