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Get your coffee and read about the implications of an aging population in the United States amid rising debt, its unintended effects on the country's debt, and what all this means for Bitcoin ($BTC
Today's cryptocurrency news: U.S. debt will sink paper currency.
Max Keiser, a Bitcoin pioneer, recently highlighted the increasing risks of U.S. debt, as noted in one of the U.S. cryptocurrency news posts.
Raoul Pal, founder of Real Vision, echoed the same sentiment but in a different way. He sounded the alarm about the macroeconomic effects of an aging population and debt inflation.
The former Goldman Sachs executive refers to Bitcoin as the 'lifeboat' from the coming storm.
"Over time, and due to the aging population, governments need to borrow more money to support GDP growth to pay interest on the debt... This reduces the value of the currency and lowers the rank, making scarce assets more visually valuable," wrote Bal in a post.
He argues that this dynamic is largely misunderstood but critical to understanding global markets. "It's all demographics. It always has been," added Raoul Bal.
The United States represents an example of this demographic debt trap. The shrinking working-age population must support an increasing number of retirees, driving up government expenditures.
The Congressional Budget Office (CBO) projected in February 2024 that U.S. debt will reach 116% of GDP by 2034. If current policies remain unchanged, this rises from just over 100% today.
To maintain such levels of debt, governments increasingly rely on central banks to inject liquidity through tools like quantitative easing (QE).
Bal highlights how this artificially supports debt markets, as the Federal Reserve is effectively 'printing' money by increasing net liquidity.
Instead, by pushing banks to absorb more government debt through regulation. The result is a continuous decline in the value of paper currencies, which Bal estimates at 8% annually in the dollar's erosion.
"With over 100% of GDP in debt, there is not enough economic cash flow to finance debt growth, so it is 'printed' via the Federal Reserve's net liquidity and also imposed, through regulation, on bank balance sheets," explained Bal.
Alongside Bal, Jack Mallers from Twenty One Capital also described Bitcoin as a lifeboat, referring to Bitcoin as an exit door against currency devaluation.
Bal says Bitcoin compensates for a 8% annual decline in the value of paper currency.
According to Raoul Pal, cryptocurrencies, primarily Bitcoin, are a lifeboat, compensating for the annual 8% decline in currency value while gaining value at the same time due to adoption effects.
In 2020, he shared a similar opinion on the Real Vision blog, at a time when demographic pressures were becoming more acute after COVID.
"Bitcoin is a lifeboat. It is not just a mechanism to escape the monetary system; it is a superior version of it. It is the massive black hole that absorbs all energy and capital from the traditional system," came in an excerpt from the blog.
Based on his latest post on X, his conviction has only been strengthened.
Macro analysts Olivier Garret and Bal share Bal's views. In 2017, he argued that demographics would be the biggest driver of financial markets in the future.
He pointed to Japan as a cautionary tale, characterized by an aging population, stagnant productivity, and rising debt levels that necessitate endless monetary easing.
"This is how the world works... When both population and productivity growth decline together, the long-term trend rate of GDP declines. So, how do you solve the problem of declining GDP caused by population and productivity growth? Debt growth," Bal mentioned in a Substack post years ago.
With its fixed supply of 21 million, Bitcoin offers a stark contrast to paper currency. Its appeal lies not only in its scarcity but also in its increasing global adoption. El Salvador's adoption of Bitcoin as legal tender in 2021 reflects this shift.
Charts for the day.
U.S. labor force participation rate versus government debt as a percentage of GDP. Source: Raoul Bal on X.
Federal Reserve net liquidity versus U.S. government debt as a percentage of GDP. Source: Raoul Bal on X.
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