Bitcoin Will Not Kill The US Dollar, The Government Will
Daniel Lacalle

In a recent interview with Seth Meyers, President Biden mentioned that the United States has the strongest economy in decades. However, the reality shows that the 2023 GDP growth adjusted for the accumulation of public debt was the worst since 1930. The U.S. national debt hit $32 trillion in June 2023 and surpassed $33 trillion in September. The U.S. national debt now stands above $34 trillion and is rising by $1 trillion every hundred days. The trend is exceedingly worrying because the next trillion comes faster every time, and all this is happening in an alleged recovery with strong employment growth and rising earnings.

Debt matters, and there is a reason U.S. citizens do not see such a positive picture. Negative real wage growth, diminishing purchasing power of salaries and savings, and a much tougher position for families to make ends meet.

MMT (Modern Monetary Theory) proponents defend that the government can run massive deficits if it needs to, and its only constraint is inflation. Reality shows that the government continues to spend regardless of an official accumulated inflation of 20% in four years and that it only uses any excuse to spend more than it collects despite rising tax receipts. The government does not reduce the deficit when inflation kicks in and continues to pass on the burden of debt and rising prices to families. MMT is simply an ideological trick to allow the government to do what it wants with fiscal policy, only to find that there is no turning back when the disastrous results become apparent.

Inflation is evidence of monetary mismanagement and persistent inflation is proof that the last economic agent that we should trust to defend the currency is the government.

No government truly defends the status of its currency as a reserve of value and generalized means of payment because it will always blame anyone except themselves for the loss of confidence in the currency. And by the time that citizens all over the world lose confidence in the US dollar as a reserve currency, the damage will already be done and, more importantly, its consequences will be paid by the average citizen of the United States, not by the incompetent administrators that made debt soar and deficits become permanent.

That is why MMT is such a dangerous idea to experiment with. When it fails, and it always does, it is you who pay the entire cost.

The US dollar has not lost its position as a reserve currency yet, but that does not mean it will not happen. Risks build slowly but happen fast. When it does, it will be too late.

Monetary sovereignty is not a given and even less a blank check to allow the government to increase deficits and debt forever. Monetary sovereignty is lost faster than the blink of an eye when the world realizes that faith in the public accounts of the administration is gone.

Public deficits are money-printing. This is not “reserves for the private sector,” but debt with the nation’s global creditors. When confidence in the ability to repay debt is eroded, it manifests through a higher cost of borrowing and higher inflation. Governments always think that inflation is not their fault and ignore the consequences.

It is no surprise to see Bitcoin surpass $69,000 (record highs) when public debt soars to $34 trillion. With inflation, higher rates, the loss of purchasing power of wages and rising interest expenses, another alarm bell shows us that the fiscal situation of the United States is unsustainable. The only thing that has kept the US dollar afloat as a reserve currency is that the fiscal and monetary imbalances of its competitors are worse. But that is only a battle between fiat currencies, in which all of them are eroding the value of printed money. The destruction of the US dollar is also evident in the high level of gold relative to most fiat currencies and the gradual loss of confidence of citizens who understand that this insane accumulation of debt is going to end with much weaker growth, less productivity, and a massive destruction of the real value of wages and savings.

Bitcoin is yet another alarm bell that the statism crowd ignores.

The statisticians maintain that deficits do not matter because nothing has happened yet. It is like saying that driving at 200 mph is not a problem because you haven’t killed anyone yet. Furthermore, the signs that indicate that fiscal imbalances should be eliminated rapidly are plain to see. Americans are suffering a loss of real wages, a loss of access to essential goods and services, higher taxes, and the prospect of a stagnant economy bloated with debt that may soon be worthless, driving the currency with it.

To say that nothing has happened is an insult to the families that have to go through two and three jobs to make ends meet, that find it increasingly difficult to purchase their essential goods or buy a home and to the businesses riddled with taxes.

No, Bitcoin may not kill the US dollar, but the US government may if it continues down this path.

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat​ (2015), and Life in the Financial Markets (2014).

He is a professor of global economy at IE Business School in Madrid.

Ranked as one of the top twenty most influential economists in the world in 2016 and 2017 by Richtopia, he holds the CIIA financial analyst title, with a postgraduate degree in higher business studies and a master’s degree in economic investigation. He is a member of the advisory board of the Rafael del Pino Foundation and Commissioner of the Community of Madrid in London.

Lacalle is a regular collaborator with CNBC, Bloomberg TV, BBC, Hedgeye, Seeking Alpha, Business Insider, Mises Institute, and the Epoch Times as well as an occasional consultant for the World Economic Forum, Focus Economics, the Financial Times, the Wall Street Journal, and other major news publications around the world.

 

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