United States Government Debt: Historical Trends and Future Implications

The United States government debt has been a perennial topic, and it's interesting to note that historical economic growth occurred with flat or declining national debt.

### US Federal Reserve's Balancing Act: Analyzing the Money Printing and Debt Trajectory
* 💸 The US Federal Reserve has been managing a delicate balancing act by **printing money to buy government debt**, creating a floor for bond prices and **lowering interest rates**.
* 📈 Historically, the Federal Reserve's ownership of US government debt has fluctuated over time, with key events like the **end of the gold standard** and the **Great Depression** significantly impacting the **percentage of debt owned by the central bank**.
* The "money print" represents the **exogenous money injected into the economy by the Federal Reserve**, and the central bank's ownership of government debt serves as a form of **outside money**.
* 🏦 While the Federal Reserve's ownership of US government debt has been trending up in the long term, it has also experienced **volatility in response to various economic and financial crises**.
* From 2014 to 2018, the Federal Reserve did not increase its money printing, but during the COVID-19 pandemic, it engaged in **significant money printing to support the economy**.
* 📉 The Federal Reserve has been gradually reducing its money printing since the peak in November 2021, which is a **positive step in normalizing its balance sheet**.
* 🏛 The US government has been running significant deficits, with the average amount of deficit spending historically being **above the level that can be sustained without money printing**.
* 📈 Over the long term, the trajectory of the Federal Reserve's money printing and the US government's debt levels suggests a potential path towards **hyperinflation**, although the timing of such an event is **uncertain**.
* 🔮 While the Federal Reserve's current efforts to reduce money printing may appear prudent, the underlying structural challenges posed by **high debt levels and deficit spending** raise concerns about the **sustainability of the current economic framework**.

### Bitcoin's Path to Hyperbitcoinization
* 📉 "When this thing goes negative, they're **destroying the print** and that causes **interest rates to rise**."
* 💸 The current monetary policy involves printing money, leading to **rising interest rates** and causing a lot of **pain for debtors**.
* 📈 The only way out of the debt crisis is to **cut spending, cut debt, and raise interest rates**, all of which are **painful**.
* 🇬🇧 In the UK, as in many other countries, there is a lack of political will to make the necessary difficult decisions, such as **cutting spending**.
* "Thank goodness for Bitcoin," as it provides a way to **protect against the madness of the current monetary system**.
* 📊 The Bitcoin market cap is following a **power law trend**, and the current trajectory suggests a **bright future for Bitcoin**.
* 🔮 Based on the power law trend, Bitcoin is projected to reach **$2.6 million** by the end of 2025.
* 💰 Bitcoin is often described as "**outside money**" and is the most analogous to **base money**.
* 📈 The Bitcoin market cap as a percentage of base money is currently at **5.2%** and is projected to reach **100% by 2033**.
* Imagine being Peter Schiff and **betting against this trend**.

Bitcoin v The US Debt Bomb with Matthew Mežinskis

With What Bitcoin Did, host Peter McCormack talks to experts in the world of Bitcoin, economics and politics. From developers to investors, journalists to authors, you will learn about everything in the world of Bitcoin.

What Bitcoin Did

The History of United States Debt and Its Relationship with Economic Growth

The United States has had a long history of debt, with fluctuations after wars and during economic growth periods.

The period after the Civil War showed almost flat national debt while experiencing significant economic growth, challenging the belief that debt is always necessary for growth.

The Federal Reserve's ownership of the US national debt was minimal, around 1-3%, during the early 20th century, contradicting the common narrative of the need for extensive debt and money printing for progress.

The Impact of Federal Reserve Bond-Buying on Government Debt

The Federal Reserve's ownership of government debt increased from 10% to 18% during the Vietnam War, causing concern and leading to the end of the gold standard.

The Federal Reserve's bond purchases created a floor on bond prices, lowering interest rates and easing the government's financial burden.

In the 70s and 80s, the US government's debt issuance outpaced the Federal Reserve's bond buying, leading to a significant increase in debt.

The Impact of Federal Reserve Bond-Buying on US Debt

The Federal Reserve maintained a standard pace of buying US bonds, while the government's debt continued to increase.

During the 80s and 90s, there was a prevailing belief that deficits were not a problem, leading to a continuous rise in debt accumulation.

The Federal Reserve's bond-selling and corporate bond-buying in the lead-up to the global financial crisis contributed to a significant shift in debt ownership and a subsequent economic downturn.

The US Government's Debt and Bond-Buying Patterns

The US government did not increase its bond-buying from 2014 to 2018, contradicting the popular belief of constant money printing.

Foreign creditors, including the Chinese and European investors, continued to buy US government bonds despite the growing debt.

The Federal Reserve's money printing, as a percentage of the government's debt, has decreased since November 2021, and they destroy the printed money by selling the assets back into the market.

The Long-Term Trend of US Deficit Spending

The trend of US deficit spending has shown a long-term upward trajectory, currently standing at 53 cents on the dollar, far above the historical average of 28 cents.

The chart demonstrates significant deficit spending, especially after major events like the Great Depression, World Wars, and the 2008 financial crisis.

Despite the current interest spending being at 21 cents on the dollar, which is near the historical average of 20 cents, the real nominal spending on the military and interest is causing concern about the government's ability to service its debt.

The Impact of Government Money Printing on the Economy

The government's current conservative monetary policy involves reducing the amount of money being printed, which is causing interest rates to rise and is likely to lead to a recession.

The trajectory of money printing is on the path towards hyperinflation, which could potentially lead to a period of high inflation to eliminate debt, but it would come with significant pain.

The government's lack of effort to cut spending is contributing to a negative financial situation, with 53 cents being spent beyond every tax dollar, far exceeding the historical average of 28 cents.

The Impact of Monetary Policy on the Economy

The current monetary policy of continuous money printing is leading to real inflation and a painful period for people.

There is a concern that the focus on political decisions over the right economic choices is causing a volatile and jagged economic situation.

The increase in defense spending in some parts of the world is further contributing to the deficit, making it challenging to cut spending.

The Slow Growth of Central Bank Gold Stock

Central banks' gold stock has only increased by 0.

1 billion ounces in the 15-16 years since the global financial crisis.

The total world gold stock is growing at a faster rate than central banks' holdings.

The power law trend line is being used to predict Bitcoin's future prices, showing a gradual asymptotic increase.

Bitcoin's price trend line in 2010 showed rapid and significant growth, indicating a lack of proper price discovery.

The shift to the 2016 trend line suggests that Bitcoin follows a power law regression, projecting a value of $77,000 per Bitcoin.

The inclusion of 2010 data disrupts the trend lines, raising the question of whether it should be excluded for more accurate projections.

Predicting Bitcoin's Future Trends and Market Cap

The speaker discusses a model based on supply and demand, rather than stock to flow, to predict Bitcoin's trend.

They are confident that Bitcoin will hit between $276,000 and $822,000 by the end of 2025, potentially winning a bet.

The conversation also touches on the base money, with the current value at around $26 trillion, and explores the Bitcoin market cap as a percentage of this base money.

The Role of Bitcoin in the Financial System

Bitcoin is not a money market fund, stablecoin, treasury, or real estate, but rather a form of base money outside the financial system.

The percentage of Bitcoin in comparison to base money has been steadily increasing, with a projection to reach 100% in about a decade.

Bitcoin follows a power curve growth, in contrast to the exponential curves of the financial system, and its market cap shows a strong and impressive trend, outperforming traditional projections.

Bitcoin's Projected Trillion-Dollar Trends

Bitcoin's market cap is projected to reach 35 trillion, while the monetary base may hit 80 trillion by 2033.

There is a potential for hyperbitcoinization, with a possible two Sigma up move to 240 trillion by 2023.

The projected supply of Bitcoin is expected to be around 20.

7 million by 2033, potentially impacting its future price.