Good morning everyone and welcome to our Chart of the Week series! Every week we provide you with one of the most informative Bitcoin charts, sent directly to your inbox. This week we dive into whether or not Bitcoin can solve the US Government’s Debt.

Can Bitcoin Fix the National Debt?

As the federal debt, growing at $10B a day, passes $36 trillion dollars, the very solvency of the US becomes a bigger question with each passing day. We now spend more on servicing our debt than on the greatest military the world has ever known.

Interest expense is already over 20% of total revenue. Our debt to GDP is 125%. Our unfunded, off-balance sheet liabilities stand at over $200T. Mandatory spending is already over 100% of tax receipts.

In our opinion, we are already in a debt crisis. “The United States can never be insolvent! It can print its currency!” We acknowledge that the US can never technically default, so long as it prints dollars, but the question then becomes, how much debasement will the American people be required to suffer?

The American people will be forced to pay for the debt, one way or another (via increased taxation or monetary debasement).

Its Actually Much Worse Than You Realize

As dire as the fiscal position may seem, it’s actually much worse than most people realize. The (very) conservative estimate by the Congressional Budget Office estimates that Social Security will be unable to meet all of its obligations by 2034. Social Security and Medicare outlays, which alone are well over 50% of tax receipts ($3.2T/$5.1T), are simply interest on unfunded liabilities.

Someone that entered the workforce in 1965 and started contributing to Social Security and Medicare, they were promised real goods and services decades in the future. The dollars that they were contributing are rapidly losing purchasing power, in terms of real goods and services.

Even if contribution rates raise with the official CPI/inflation data, the real inflation rate is significantly higher. Here we see that, when using the manipulated CPI data, it appears Personal income has been rising. However once using the correct denominator (total money supply), we see that CPI vastly understated real inflation:

This, obviously, is a much more accurate representation of what actual inflation’s is, as any working person could tell you. That baby boomer that started working in 1960 (that was contributing 1960 dollars based on a 1960s income) would have had real goods and services promised to them (say, a knee replacement).

That knee replacement would have cost about $2,500 in 1960. Using actual inflation rates, the cost today, is approximately $30,000, with Medicare covering 80%: $25,000. This is a 10x increase!

Interest

The other major outlay for the federal government is interest, which is now more than defense spending- over $1 trillion a year. Interest expense is the most rapidly growing budget line item, and will only increase, as ~$10T of debt needs to be rolled over at higher rates, and government revenue (tax receipts, mainly) has come nowhere close to keeping up.

Bitcoin Fixes This?

A speculative attack on our own currency may just be the only ticket out of our bleak fiscal picture i.e. printing fiat USD to buy a real, scarce asset like bitcoin. A bill proposing to do just that has recently been introduced into Congress.

A little math on how this would likely work in practice:

• Since year 2 of bitcoin’s creation (when we first were able to track reliable price metrics), the Compound Annual Growth Rate (‘CAGR’) for Bitcoin has been 1,200%.

• Over the past 10 years, bitcoin’s CAGR is lower at 185%.

• Since 2017 when Bitcoin started to gain more widespread adoption, the CAGR is still ~100%.

It’s clear that Bitcoin’s growth rate has decreased over time as adoption has increased. However, even when we remove the first 8 years of bitcoin’s spectacular performance, the CAGR is still an astounding 100% every single year.

Let’s assume we were to print a one-time sum of $1T and use it to buy bitcoin (for context, remember that is only a single year’s worth of interest on the government debt).

Here is the performance $1T bitcoin allocation over the next 10 years assuming a 100% CAGR:

• Year 1: $2T

• Year 2: $4T

• Year 3: $8T

• Year 4: $16T

• Year 5: $32T

• Year 6: $64T

By the end of the next presidential term, we could see a bitcoin position already worth ~50% of the national debt. Give it another 2 years and it would be worth well over the entire national debt. A total reset. Polar opposite of the enormously unproductive fiat debt.

Even using a much more conservative 50% CAGR (half of the actual trailing CAGR) and the same $1T bitcoin investment, it would rapidly help in deleveraging the liabilities side of our balance sheet:

• Year 1: $1T

• Year 2: $2T

• Year 3: $3T

• Year 4: $5T

• Year 5: $8T

• Year 6: $11T

• Year 7: $17T

• Year 8: $26T

• Year 9: $38T

• Year 10: $58T

One thing is certain, which is that bitcoin’s absolute scarcity does exceedingly well in the modern, highly-levered fiat economy. Whether the country’s politicians have the ability or the political will to make sure an investment occur, is clearly up for debate.

However, it should be noted that these principles work just as well for the individual, as they could for our country.

Bitcoin helps everyone, whether it’s a sovereign, a corporation, or even an individual, and if that doesn’t inspire you to stack more sats, we’re not not sure what will!