Government Debt In The Crypto Era
May 2017 Pew Research Center report shows that since the presidency of Lyndon Johnson, the public’s trust for the American government has been on the steady decline. Just 18% of Americans trust the government in Washington, and “the share saying they can trust the government always or most of the time has not surpassed 30%” the beginning of the global financial crisis in 2007.
One of the primary reasons for rock-bottom approval ratings is that the government does not know how to manage money. The US Debt Clock is a grave reminder that despite Washington’s fake attempts to balance the budget, the federal debt keeps soaring. At present, the debt stands at over $20.6 trillion, equivalent to $63,000 per citizen and $170,000 per taxpayer.
Unfortunately, the debt problem is not unique to the United States. According to the Institute of International Finance (IIF), global debt levels hit an incredible $233 trillion in Q3 2017, a new record. Though the report included all types of debt as a household, government, and corporate debt, a significant portion fell at the feet of global governments. One of the trends that began in 2017 and will continue for the years to come is how money is being piled into cryptocurrencies for protection from fiat government problems.
How Governments Mismanage Money
The saying goes, “Cash is king,” and this is nowhere more true than with fiscal and monetary policy. Fiscal policy, which is typically set by a country’s lawmakers, deals primarily with how governments collect and spend taxpayer money. Monetary policy is set by central bankers and is used to control the money supply and interest rates. In both cases, governments have proven to be inept, and King Cash is woefully managed.
Regarding fiscal policy, global governments continue to pile on debt in hopes that high spending will somehow solve the problem of… high expenditure. In some cases, as in the 2007–2008 global financial crisis, the poor fiscal policy is met with poor monetary policy.
Several countries, including the United States, approved myriads of corporate bailouts, some of which have yet to be paid off. The European Union has famously bailed out Greece several times, akin to rewarding criminals for bad behavior. At the same time, central banks lowered interest rates and bought debt with a combined effect of sending deficits to new heights — remember the IIF survey? For individuals and citizens, financial instability and global debt are caused by entirely uncontrollable factors. Fiat currency solutions are unattainable.
How Bitcoin and Cryptocurrencies Provide an Alternative
In Satoshi Nakamoto’s landmark white paper, the abstract begins, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” In other words, a peer-to-peer digital currency like Bitcoin allows payments and transactions to be made without the need of a central fiat authority — including federal governments and central banks.
The sad reality is that hard-earned tax dollars are squandered by greedy politicians with little to know the connection to real life. A mere handful of elites control the fates of millions of people. To add insult to injury, central banks can manipulate currencies and artificially inflate or deflate the value of money, leaving citizens in a lurch without a way forward.
The advent of quantitative easing also allows central banks to suppress interest rates and change the value of money, all while racking up debt that eventually will be met with a reckoning — for taxpayers who were forced to subsidize the government from their hard earned wages.
This is where Bitcoin and cryptocurrencies come in. Because Bitcoin is genuinely peer-to-peer and decentralized, no central government or authority controls it. It cannot be taxed or artificially inflated — its value is derived from the consensus of its users and laws of supply and demand. The currency supply is not forcefully manipulated, so wages that are paid in Bitcoin can be devalued by errant fiat currency policy.
One study, conducted by a University of Pennsylvania researcher and a Federal Reserve Bank of Philadelphia researcher, concluded:
If a central bank, for example, does not provide a sufficiently “good” money, then it will have difficulties in the implementation of allocations. This may be the best feature of cryptocurrencies: in a world where we can switch to Bitcoin or Ethereum, central banks need to provide, paraphrasing Adam Smith, a tolerable administration of money. Currency competition may have, after all, a large upside for human welfare.
A recent Wall Street Journal report noted that in places like Zimbabwe, Kenya, and South Africa, cryptocurrencies like Bitcoin are “often seen as a replacement currency in countries rocked by political or economic instability.” As fiat denominated debt continues to soar and fiat funded governments continue to err, Bitcoin and its cryptocurrency peers seem like an increasingly attractive proposition.
Evidence to a twist in our ‘sobriety,’ can be found at The Venezuelan government’s attempts to save the country’s collapsing economy by a Venezuelan cryptocurrency that would be backed by the country’s oil, gold, gas, and diamond reserves. Venezuela is home to the world’s largest crude oil reserves, but its production has steadily declined to a 13-year low after companies halted some operations because of unpaid bills.
However, the cryptocurrency is unlikely to resolve the country’s deep financial problems.
