By Balaji Srinivasan, Former CTO of Coinbase
Compiled by: 0xjs, Golden Finance
No election can pay off America’s $175 trillion debt. Only the printing press can.
Because as Musk, Dalio, and others realize…the Western world is headed for a sovereign debt crisis worse than 2008. Just like they’ve been lying about Biden having dementia, they’re also lying about how the economy is doing. So they’re going to print a lot of money.
Look at the data and judge for yourself.
1. Emergency loans are higher than in 2008
First, did you know that the Federal Reserve has made more emergency loans in 2023 than during the financial crisis of 2008? The banking system has been kept on life support because the U.S. government first sold billions of dollars in bonds to financial institutions and then devalued them through unexpected interest rate hikes.
Just look at this chart from the Fed. The blue bump on the bottom left is lending during the 2008 crisis. The purple is COVID. The giant orange/teal monster on the right represents the 2023 banking crisis. See how much higher it is than 2008?
2. Borrowing exceeds COVID-19
Second, did you know that the U.S. borrowed more during the Biden boom than during the COVID pandemic? Let’s not even get into the question of whether COVID should be considered a financial crisis. At least the borrowing during COVID was at about 0%. But now the U.S. government is borrowing historic amounts of money in peacetime… and at 5% interest! This is the behavior of a desperate person maxing out his credit card bill.
3. Interest payments exceed defense spending
Third, did you know that all this borrowing has made interest payments on the national debt the single largest expenditure for the government? More than defense, social security, or anything else. The first use of all taxation (and printed dollars) through 2024 is to pay bondholders. Even so, anyone who bought Treasuries (or other bonds) over the past few years is almost gone. For all the wars and all the welfare, it’s buy now, pay later. As you can see from the chart, the time to pay is coming.
4. Further depreciation of the US dollar
Fourth, did you know that the dollar has lost at least 25% of its value in just four years? You probably know this from your own experience with inflation. But Larry Summers estimates that the loss in purchasing power is even greater than that, at an average of 18% per year when you factor in the significant increase in loan payments due to rising interest rates. That’s well over 25% of the dollar’s value in four years.
5. China further sells off U.S. Treasuries
Next, did you know that China (the largest foreign buyer of US Treasuries) has been selling US Treasuries at an accelerating rate? This is a bit technical, but China is an “outside investor” in the US, just like the new venture capitalists who invest in your tech company are outside investors. Even if they only buy 5% of your equity (or in this case debt), they set the price for everyone else. And show that external demand is strong, and that demand is coming from people who don’t have to buy. But now that external demand is collapsing:
6. BRICS countries buy more gold
But isn’t the dollar a store of value? What else would other countries buy if not U.S. Treasuries? China is leading most countries outside the U.S. These countries have begun hoarding historic amounts of gold, while Western countries have been selling off. See:
7. More de-dollarized than ever before
OK, so what about the dollar as a medium of exchange? Well, China — which, if you didn’t know, is by far the number one trading partner for most of the world — just switched to conducting cross-border foreign exchange transactions in renminbi.
8. Sanctions are less effective than ever
OK, but can’t the dollar continue to be used as a sanctions weapon? Don’t countries need access to the US financial system? Actually, no. All the sanctions against Russia actually hurt Europe more than they hurt Russia. Europe needs Russian oil and gas, but Russia has other customers. So according to the World Bank (not a Russian source!), Russia just surpassed Japan to become the fourth largest global economy in terms of GDP by purchasing power parity.
9. Peacetime debt approaches World War II
But what about the US military? Couldn't it eventually go to war to protect the dollar? This is a long topic, but look at the chart below. Today, the US is ostensibly in "peacetime." But its debt is comparable to that of WWII:
Again, this is another topic, but the United States has neither the money nor the manufacturing base to launch a sustained military campaign against an adversary like China. You can't fight your factories - especially when you have no money.
10. The real debt is greater than any empire in history
Finally, perhaps the most important number in this entire topic is $175.3 trillion. This is actually the true debt of the United States when you factor in all the benefits like Social Security and Medicare. And that number itself is increasing rapidly. Don’t take my word for it, take the U.S. government’s February 2024 financial report:
$175.3 trillion is consistent with the figure of about $200 trillion that Druckenmiller has been using to represent the total US government debt, taking everything into account. Of course, we are in Monopoly currency territory at this point, because:
a) The entire federal government only took in about $2 trillion last year
b) This figure itself is affected by deficit spending
c) The dollar is down about 25% in real terms since 2020
d) $177 trillion in asset value would plummet if liquidated
e ) ...or if there is a financial crisis, or both,
Well, $175 trillion in debt is unpayable. The U.S. government doesn’t have nearly enough money to pay back what it owes. It has made promises to everyone, from allies to retirees, but simply can’t deliver. Staying in power amid this dereliction of duty is going to be so bad that most people can’t really comprehend it.
The dollar is becoming less important
In short: I haven’t even started. I could show you many more charts and many more videos from investors around the world in bonds, real estate, and technology who see what’s happening.
But if you’re honest, the dollar’s status is rapidly declining. It’s simply no longer the indispensable asset it once was. To summarize:
a) China does not need dollars to trade, they use RMB instead of USD.
b) BRICS countries do not need US dollars for savings, they buy gold instead of US bonds.
c) Russia does not need the dollar to survive, they are the 4th largest economy shut out of the US economy.
d) However, the US needs as many countries as possible to accept USD as its borrowing levels exceed those of the COVID-19 pandemic, WWII, and any empire in history.
So, what happens next? I have some ideas, but first we need to agree on what is going on.
