Once you understand how the system works, you’ll want to own a hedge against it
4 min read
By “system”, I am mainly referring to modern monetary theory, fiat currency, debt and government deficits.
I saw a post here earlier today about the increase in the U.S. debt and while it was factual, there was a lot of misunderstanding and misinformation around the comments section. And since I recently wrote a piece about this whole topic on my substack, I want to take this opportunity to spread some information. I’ll keep this short and sweet:
Debt = money borrowed by one party from another.
GDP = a country’s total economic output.
In economic discussions, debt is usually measured as a percentage of GDP and the truth is that almost all countries in the world borrow more money than they make. This means that almost every country is operating on a “budget deficit”. The current U.S. debt sits at around $33.4 trillion, while the global debt is estimated to be more than $300 trillion. And we thought crypto is magic internet money.
Like every other thing in the world, debt comes at a cost, which is the interest rate. While moderate levels of debt are generally manageable, excessively high levels of debt can become a problem, especially if the cost of servicing that debt (i.e., paying interest on it) becomes too high. Here are the stats:
The United States Government operates on a budget deficit of -8%, essentially spending way more than what it generates (GDP), which is financed by borrowing more:
Now, the GDP of the U.S. has grown by 2% (measured by Quarter-to-Quarter) which means that the total value of all goods and services produced grew by 2% in the past 4 months:
Lastly, the interest rate on the U.S. Government’s debt is 2.67%, which is higher than its GDP growth:
Mindblowing fact: According to the US Treasury’s monthly statement, the US government is currently spending more to pay interest on its $33 trillion national debt than it does on national defence!
What we can conclude from this is that the cost of servicing this debt is becoming a burden for the U.S., as the GDP growth lacks behind its interest rate. This ultimately means that this debt will never be repaid. And that’s fine supposedly because the U.S. can keep increasing its debt ceiling, as they have done so in the past 78 times.
This is where “Quantitative Easing” comes in. When the Federal Reserve, or any central bank, enacts QE, it essentially creates new money and uses that money to buy financial assets, often government bonds. This process increases the amount of money in the economy, which then devalues the currency.
Simply put, the U.S. seems to be stuck in a hamster wheel of debt, where it pays off just the interest, engages in Quantitative Easing (QE), raises the debt ceiling, and repeats. This game plan works as long as the US maintains its status as the issuer of the world’s reserve currency – the almighty dollar.
We’ve seen this play out so many times, nobody even cares about any more. The debt was raised yesterday; come next deadline, they will suspend it again. At the same time the U.S. Gov is stalling by only paying off the interest on this debt, until JPow comes in hot with his money printer again, the stock market rises, profits everywhere, America is partying.
Meanwhile, everyone is actually poorer than yesterday since the currency keeps getting devalued (except for the already wealthy ones, whose wealth only increases – that’s another topic).
So, we can either sit here and cry about it, or participate in it while also hedging against it. Since the inception of fiat currency, the world has turned into a global ponzi scheme based on debt. That’s my thesis. I buy as many assets as I can to participate in the party, while also stacking sats as a hedge against the ponzi. If you’re here, you already know the why.
Thanks for reading. If you want to read more on my substack page, feel free to DM me.
submitted by /u/DerpJungler
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