US in ‘Terminal Debt Spiral’, Might Help Crypto & Digital USD Adoption
With governments across the world pumping public spending to mitigate the economic impact of the COVID-19 pandemic, 2020 could be a record-breaking year for debt. While this year’s spending extravaganza could tank the value of currencies worldwide and spur a hike in inflation, as stated a recent analysis by the U.S. think tank Mises Institute, it’s reasonable to wonder if it could potentially boost the adoption of cryptocurrencies.
Ryan McMaken, Senior Editor at the Mises Institute, wrote:
“Until the U.S. really faces a global move to dump the dollar as the reserve currency, or until interest rates in the US really start to climb, there will be no measures to bring the debt back down. We’re in a terminal debt spiral. The only question is how long it will last until the patient succumbs.”
McMaked added: “Poised to add more than $3 trillion to the national debt in 2020, the U.S. is borrowing more than ever, and committing to ever larger dollar amounts that must be paid on the approximately $25 trillion debt.”
The analyst said that the U.S. Treasury is allocating about USD 400 billion annually to pay the interest on the debt, but largely because it benefits from a historically-low rate due to the dollar’s dominant role in the global economy. The 30-year bond is currently subject to an interest rate of below 1.5%.
Washington is not alone in its spiral towards deeper indebtedness. The UK’s central bank Bank of England deployed its money printers into full BRRR mode to inject USD 125 billion worth of pound sterling into the British economy, all the while freezing UK interest rates at the record-law 0.1%.
According to McMaken:
“And what if interest rates increase to even 3 percent—which would still be a very low rate historically? If that were to happen, total debt service paid on the debt could surge to a trillion dollars or more. That’s an amount similar to the total paid out each year in Social Security right now. If that were to happen, Congress would have to find that money somewhere. To pay the interest, they’d have to cut funds from Social Security, defense, infrastructure spending, Medicare, or somewhere else,”
Should the U.S. Federal Reserve continue to flood the market with dollars, this could result with a hike in inflation, “surging home prices, … food prices, and … a generally rising cost of living”. It could also dethrone the dollar from the privileged place it occupies in global trade.
Meanwhile, to prevent such a scenario, the Digital Dollar Project group that comprises top managers and former regulators has been pushing for the U.S. government to adopt a digital dollar, cautioning that failure to launch a central bank digital currency (CBDC) could cause the USD to lose its status of the world’s reserve currency.
Meanwhile, a number of voices from the Cryptoverse have called on Americans to jump off the wobbly fiat wagon, and invest their COVID-19 stimulus checks into bitcoin (BTC) and other cryptocurrencies. With the next round of checks expected to arrive in the fourth quarter of 2020, many observers are waiting to see whether the end of the year could bring a surge in crypto adoption across the country.