“Hidden Recession” – a disaster for the US economy, but not for Bitcoin
"Hidden Recession" - a disaster for the US economy, but not for Bitcoin
Economic growth in the past decade has been artificially generated by the United States government. This relatively well-known fact has been made clear by a simple analysis of debt compared to gross domestic product (GDP). So should investors use external sources like Bitcoin or Gold to prepare for a crash?
In the last decade the US added nearly $11 trillion in debt while growing GDP by only $7 trillion.
In other words: Every $1 in growth came with over $1.5 in additional debt. pic.twitter.com/mandXOZYPB
— Sven Henrich (@NorthmanTrader) January 1, 2020
The numbers are simple: US GDP has grown dramatically to $ 7 trillion in the past decade. This number sounds extremely impressive given the decline during the 2008 crisis.
However, the federal deficit rose $ 11 trillion over the same period. The deficit was largely due to the extremely liberal quantitative easing (QE) policy and stimulus packages.
When money was pumped into the economy to generate liquidity, it grew. The problem lies in return on investment (ROI): every dollar of growth in the US economy cost $ 1.50 in federal debt.
The fiscal policy of spending on growth spans multiple generations and both political parties. During the Reagan era, every $ 1 in debt produced about $ 4 of growth. This number has decreased steadily over the past 40 years.
This policy structure was the blueprint for the Federal Reserve (Fed), whose job is to keep the economy inorganically liquid. The massive debt has made the economy run well. The pain is not yet noticeable, but the price for it has to be paid at some point.
The loss of stability in the global economy already signals that the party may soon be over. The global move away from the USD as a reserve currency also lends credibility to the problem.
At its core, growth may occur – but simple math shows that the US economy is in a covert recession. Each dollar of growth has left the US government an additional 50 cents of debt – a constant loss.
Ultimately, the only possible answer to debt reduction is currency depreciation. This would allow the Fed to pay off the debt and stop the bleeding from interest rates. However, it would also lead to massive inflation.
Bitcoin as a store of value
The broad, blissful public is not aware of the approaching pain. However, many already point out the need for inflation-protected store of value.
Bitcoin or gold and other precious metals are all inflation-resistant because their value is decoupled from the Fed’s policies. Possession of Bitcoin enables investors to move funds “outside” the economic machine. There assets can be protected from the coming attacks.