In 2008, US debts were ‘only’ $10 trillion. Nowadays it’s basically hit $31 trillion, surpassing the debt ceiling, a limit that has been set by congress previously on how much money the US could ever borrow.
Phew. To think that these debt payments will be the responsibility of the future generation — with their taxes, their productivity and economic output, and in other words, their life.
What a crap thing to inherit for the grandchildren, like the worsening earth's climate isn’t enough.
Looking at the debt growth in the past decade, you can see how ridiculous and alarming the increase is. What possibly the government needs for it to justify having so much debt in such a short time? The answer would be the post-2008 crisis recovery. The result was too out of control, creating a decade of excess and uncontrollable toxic growth across the various parts of the economy. As a tech person, the prominent example I witness is the startup world. Crap innovations get so much funding due to a flush of excess, never ending money. With that comes the other side effect: Increasing inequality, and division between people.
It’s worse that by the end of the 2010s, Covid happened, further ballooning the size of government debts because of the stimulus.
Furthermore, the amount of debt doesn’t seem to justify the growth of the GDP that has happened in the same period of time. Don’t you think a $10 trillion GDP increase from $14 trillion to $24 trillion is worth borrowing $21 trillion at the same time? The pace of GDP growth couldn’t match the debt growth. After covid hindered the much-needed growth, nowadays it's the FED’s plan to slow down the economy — with rate hikes — that’s been standing in the way.
A country being debt-ridden is a global pandemic in itself. Not just the US suffers from the sickness, but also other countries. Some fares better than others, for example, despite my nation’s debt increase in the past decade, it’s accompanied by wild economic growth and also a healthy 30%-ish debt-to-GDP ratio throughout that period. On the other hand, Japan is in an even more worrying situation than the US for having stalled economy and high debt-to-GDP ratio.
What’s the root cause of debt sickness?
There’s only one thing in my mind: Greed. And sprinkled with some incompetence and short-sightedness.
Essentially, there’s nothing wrong with debts and loans. They are alright in their purest sense. People with a surplus of money lend it to the ones who need it. It’s better than having idyllic wealth. Better if it’s in the hand of the productive ones. The economy will grow, and innovation will get the funding it needed, a win-win situation for all.
The policymakers know about these inflation rules, but often they can’t resist themselves. After all, they hold control of the printers, and the power to ditch the gold standard for once and all.
The government has the ability to issue debts collateralized by nothing but a promise of a profitable (economic) future for that country. This is how money is printed out of thin air. Very irresponsible and arrogant of those elites, IMO, as if they know for sure that they can always pay the debt like the Lannisters, and that they can steer others to produce economic output like peasants to fulfill their economic goals. A new kind of feudalism. Not to mention that in the case of the FED, they aren’t elected officials.
I need to ask you again, how fu*ked up is that?
Public ledgers > Central banks
A belief that the matter of public interest should be in the hand of a few talented and intelligent gentlemen is a belief shared by many, including the founding father of America and the pioneer of the US financial system and central bank(s), Alexander Hamilton.
The flaw with this belief is to naively assume those who are intelligent and talented are devoid of personal desires, and that they, at all times are able to maintain moral chastity when given a responsibility.
As a result, the central banks of today have evolved away from the central bank Hamilton envisioned. If, in the past, the creation of a central bank is for the purpose of “providing direct funding for commerce, agriculture, and industries”, today its most prominent if not only role is to prop up the financial market. Central banks were originally created to avoid speculation and gambling, and it was so not wall street.
Central banks proved how humans are good at making rules yet crap at enforcing them. The origin of the US Central Bank, national credit score, and, debts was noble, as they aimed to break free from the exploitative nature imperialism-propped economic system of the then British Empire. But over time, of course, humans started being sidetracked and time once again remind us why we can’t have nice things (for so long.) (Even Hamilton, if that Broadway Musical was accurate, is not devoid of selfish ambition himself.)
Upon hearing that $31 trillion debt my mind was provoked because it reminds me again of why we crypto. Why this industry shall exist as a great experiment, alternative, and the future of the current monetary system.
There are simply a lot of absurdities about the current way we do things with our money. Something has to change.
I’m pretty sure the motivation behind our crypto founding fathers is that they’re sick of humans — the elite small majority — making the reckless decision that does not only impact the other humans but also the ones who are not even born yet (remember, the future generation that will bear the long term consequence of the existing monetary policy.)
It’s time for the robot to enforce the rules. Meanwhile, it’s important to note that in crypto, it’s never about machines creating the rules, but rather just enforcing the agreed-upon human-made rules. Human code the contract, and contracts enforce it while human gives up control. On a philosophical level, I like to think how crypto is our own answer to our own most fundamental enemy: ourselves.
Money supply
Another aspect blockchain technology can help solve is regarding monetary supply.
In essence, the reason why governments are able to issue unlimited money is that nobody can tell them not to.
If only there was a mechanism that caps inflation at a certain rate, or that it automatically goes up and down depending on supply and demand, or a consensus mechanism that prevents small elites from deciding major policy changes?
Oh yeah, blockchain.
Ethereum has the best monetary policy among other crypto assets. Ever since the merge, issuance fell drastically. Moreover, in Ethereum, the limit of issuance is naturally dependent on the number of validators. There can be at max 5000 ETH validators mined for a day for each validator to be justifiably profitable. when the yield is too low and too not worth it to stake, naturally people are encouraged to unstake until the yield is back at an acceptable level.
And then there’s the fee burn mechanism that further reduces ETH issuance (EIP 1559). The new POS + fee burn, combined with dynamic action causes Ethereum inflationary status to be dynamic. It can be inflationary in one period, then deflationary in the next one. This dynamic is more natural in an economic system than forever deflationary money like Bitcoin.
The downside of Ethereum is that it was once a POW chain, and has gone through a hyperinflationary period between 2016 to 2022. It is a grievance shared by Bitcoin too, resulting in ‘baggage’ as it means early people and those who were capable of mining them is at a big advantage. Making them practically ‘the new elites.’
Another ‘weakness’ of Ethereum, it has changed its monetary policy several times, which is a favorite attack point by Bitcoin fans. It raises questions of credibility, of whether it can change again and unfairly profit a particular party. Bitcoin, meanwhile, has a monetary policy that has been unchanged since its inception.
But that doesn’t make Bitcoin a better crypto, as a 21 million supply cap is not ideal in some situations, including where growth is needed. Furthermore, it causes Bitcoin to have fewer security budget with each halving. The security budget is the amount needed for the network to keep decentralized by attracting more miners. If rewards keep dwindling and eventually going to zero, there’s a fear that it would ditch small miners out of the market leaving only large miners controlling the network. This problem has already happened during the market downturn and the rising electricity bill.
Admittedly, crypto still has a long way to go to be the future of finance. But what the people have been doing right now is on the right track. It’s nice to have an alternative, and that the opportunity exists for regular people to get away from the grip of central banks (sovereignty.) Crypto is an experiment worth having.
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