Earlier this month, the Department of Treasury said the U.S. national debt had surpassed $33 trillion for the first time ever. The debt refers to the money borrowed by the federal government from the central bank to cover its various operational expenses.
This massive spending was fueled largely by the COVID-19 crisis and the subsequent economic shutdowns, which forced the government to pay stimulus to Americans laid off work. In the meantime, the Federal Reserve, the country’s central bank, embarked on a frantic journey to hike interest rates on the dollar as it tried to combat rising inflation.
Analysts Say the U.S. has entered a “Death Debt Spiral” Due to Careless Borrowing and Spending
2022-2023 saw the fastest-ever hike in interest levels since the 2008 global financial crisis, leading to the federal government paying much more in interest on its debt. Market projections estimate that interest costs could triple from just below $400 billion last year to almost $1.2 trillion by 2032.
What is scary about these figures is that the U.S. government will be forced to borrow more to cover the rising interest expenses.
Former Wall Street broker turned Bitcoin advocate Max Keiser took to X (formerly Twitter) to say that hiking interest rates “won’t stop inflation” but instead “stoke higher inflation”. He declared that the U.S. has entered a “death debt spiral” due to the” unrelenting” and “vicious circle” of careless borrowing and spending, also adding that the dollar is expected “to go zero against Bitcoin”.
Earlier last week, Jamie Dimon, the chief executive of mega-bank JPMorgan, warned investors that they need to be prepared for a “worse-case” Fed scenario. Speaking to the Times of India, Dimon said that he wasn’t sure if the world was prepared for a 7% interest rate. His reaction came after Federal Reserve chairman Jerome Powell stated that the central bank was prepared to keep borrowing rates high if it was necessary to stop inflation.
Fed’s “Unconventional” Monetary Policy Could End the Dollar and Boost Bitcoin
Now, analysts at investment banking giant Jefferies are warning that the Fed will be forced to restart its “money printer” due to recession fears, potentially collapsing the U.S. dollar in the long run and fueling a Bitcoin price boom that may even rival gold.
In a note to clients, Christopher Wood, the global head of equity strategy at the bank, wrote that G7 central banks, including the Federal Reserve, will not be able to escape the “unconventional monetary policy in a benign manner” and will be forced to remain committed to the on-going central bank balance sheet expansion process in one way or another. He claims that Bitcoin (BTC) and gold would be “critical hedges” against the upcoming inflation.
Following the humongous expansion of its balance sheet through the COVID-19 pandemic and the disastrous lockdowns that resulted in the number closing in on $9 trillion, the Fed took strict measures to shrink the numbers by undertaking what’s called quantitative tightening. As a result, the central bank set out to reduce liquidity in the financial system and pass on new debt to the U.S. private sector.
Additionally, the Fed is also hiking interest rates as it continues to struggle to bring soaring inflation numbers under control. This is what experts fear will turn into a “death spiral” for the U.S. dollar that will eventually boost BTC prices.
The central bank could be forced to take aggressive measures in the face of an impending recession in the U.S. economy due to the unusually large lag in interest rate hikes following an explosion in the money supply through 2020 and 2021.
According to Wood
Investors Turn to Bitcoin as Alternative Store of Value to Gold
He warned that any failure to exit from the “unorthodox monetary policy” would cause the dollar standard to collapse while benefiting both gold bullion and Bitcoin owners. Wood also wrote that Bitcoin now represents an alternative store of value to gold since becoming an investible asset for institutions that have custodian arrangements in place for the cryptocurrency.
In recent years, the world’s largest cryptocurrency by market cap has seen a rather sharp rise in institutional interest. Currently, there are nine BTC-focused exchange-traded funds (ETFs) awaiting approval from the Securities and Exchange (SEC) to be listed in the U.S. spot markets, led by some of the world’s largest asset managers like BlackRock, Fidelity, and Invesco.
At the time of writing, Bitcoin (BTC) was trading at $27,902 – down 0.1% from the previous day’s price.
