Since the advent of cryptocurrencies beginning in 2009, the U.S. national debt has almost doubled, adding more than $10 trillion in under a decade. If debt continues to mount, the U.S. may eventually be faced with a fiscal crisis and potential economic collapse.
As it stands, the U.S. national debt now sits at almost $22 trillion, currently the equivalent of $66,805 per person for each of the over 300 million American citizens. In total, the total national debt is more than 105 percent of the U.S. gross domestic product (GDP) — only slightly lower than the 119% seen just after World War II.
Further putting things in perspective, the U.S. national debt has been growing by more than $5 billion per day since late 2017, adding almost $2 trillion in just a single year. At this rate, the national debt grows by more than the entire cryptocurrency market capitalization (circa. $122 billion) every 24 days.
In total, the U.S. national debt is close to 180 times higher than the market capitalization of the cryptocurrency industry and has been higher than the entire crypto economy since the U.S. entered the Second World War.
The U.S. is not alone, as practically every member state of the United Nations has a significant national debt, with the United Kingdom — France and Germany each having more than $5 trillion in national debt, equating to well over 100 percent of their GDPs.
The federal government seems to believe that printing money is the solution to this problem, while inflation is often considered the long term solution to the issue, by increasing the amount of taxes collected from citizens while reducing the absolute value of the debt.
However, neither of these solutions have slowed the growth of the debt. As the U.S. national debt has continued to balloon in recent years, while the outcome of printing money can lead to hyperinflation as seen by countries such as Venezuela and Zimbabwe.
There are at least five major ways that uncontrolled national debt can adversely impact the citizens of a country:
- Reduce the quantity and quality of government services available, reducing the standard of living.
- Reduced investment by corporations, increasing the yield on corporate bonds while requiring corporations increase the price of their products to compensate.
- Increase mortgage interest rates, pushing the absolute value of property down, reducing the net worth of all homeowners.
- Reduced competition between the typically riskier corporate bonds and government bonds, increasing the size of the government and edging out corporations.
- A reduction in socioeconomic and political power if the country is forced to default on any of its national debt, potentially leading to a crisis of national security.
The True Value is Freedom
For many countries, the absolute purchasing power of the national currency has dropped significantly in recent decades. For example, the purchasing power of the U.S. dollar has fallen almost every year since 1900, only experiencing growth in the years preceding World War II.
Since 1799, the U.S. dollar has experienced an average inflation rate of 1.39% per year. Putting this into perspective, $100 in 1799 could buy as much as $2,041 in 2018, while $100 in 1998 is equivalent to more than $154 today as the purchasing power has dropped significantly.
Bitcoin and other cryptocurrencies pose a possible solution to the debt crisis, giving citizens a monetary system to use that is not affected by bank policy, government whims and corruption at the highest levels of society.
Rather than using a financial system that is practically entirely controlled by the government, citizens now have the option to also use a completely independent system, hedging their risks against a possible dollar collapse in the future.
Being anti-inflationary, Bitcoin and most other cryptocurrencies have a controlled supply, meaning the amount of new cryptocurrency entering circulation is set by a carefully controlled algorithm. This essentially means the risk of diminishing value is unlikely while Bitcoin continues to maintain or grow in adoption.
As cryptocurrency continues to globalize, its use as a store of value should improve, while also providing holders access to an increasing number of services, goods, and markets. If the fiscal crisis does arrive, cryptocurrency holders may be somewhat protected against the impacts, having hedged their bets in this alternate financial system.
Are cryptocurrencies a potential solution to the growing financial woes faced by many countries? Will cryptocurrencies themselves inevitably suffer similar issues? Tell us your thoughts in the comments below!
Disclaimer: The author of this article holds small amounts of several different cryptocurrencies. The contents and opinions expressed in this article are solely those of the author and are subject to change at any time. The above material does not constitute investment advice, the cryptocurrency markets are notoriously volatile, and any decision to invest should be made with the guidance of a financial professional.
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