GM nostr
The way I see it, the market for government bonds is completely irrational. We have trillions of dollars per year being invested into an institution that hasn’t turned a profit in over 2 decades and has no prospect of making profit ever again. The main holders of government debt are other countries, social security, state governments, pension funds, and public companies. I can only imagine 3 ways that the US manages its massive debt:
1) issue more bonds
This option seems like an outright Ponzi scheme that will inevitably fail. As they operate at a deficit year after year, the government debt will grow exponentially. People eventually realize that their “guaranteed risk-free” return on investment is solely funded by new investors instead of actual profits. As people stop buying bonds, interest rates will rise to try to entice people to join the game and delay the its collapse. The holders of government debt as an asset will lose all that value as the government has no way to repay its debt.
2) print money
This option is where I think we are ultimately heading. It is effectively pushing all of the costs of government inefficiency, waste, and arguably harmful spending onto the holders of the US dollar. Inflating the currency discourages people from holding it, worsening inflation. It also disincentivizes people from buying bonds as they approach negative returns in real terms. The last holders of debt and currency will lose all that it is worth.
3) operate at a surplus
If the government shows some kind of financial responsibility, I still think it is possible to pay off the debt. We would need to cut government spending to only the essentials, but no politician would ever do that.
This is one of my favorite arguments for bitcoin’s inevitable adoption. People will still need money. But I’m also a little worried. Early adopters will be rewarded, but somebody will be left holding the bag. People are relying on social security and pension funds for their retirement. It isn’t going to be pretty when the value of their assets collapses. This is my main fear of hyperbitcoinization.
I don’t have any for al education in economics so please correct anything that is wrong.
#grownostr #bitcoin