Many have called bitcoin as the biggest bubble in history. Who can blame them? The meteoric rise of the cryptocurrency from $0.06 in 2010 to as high as $20,000 in 2017 has left many dumbfounded. The fact that bitcoin is still alive and starting a new bull trend is giving critics ammunition to call the cryptocurrency as a failed asset.
Perhaps the reason why critics are throwing shade at the cryptocurrency is because they don’t want people looking at their actions. For instance, the most powerful nation in the G7, the United States, has a serious debt issue. The chief executive of a digital exchange platform noticed this problem and shared it on Twitter to open the eyes of his followers. It’s about the U.S. federal debt.
U.S. Federal Debt Is the ‘Strongest Example of Greater Fool Theory’, Says ShapeShift CEO
In a bubble, most buyers purchase the asset believing that the price will continue to rise as others scramble to get a piece of the action. This is commonly known as the greater fool theory or the idea that there’s somebody who will buy the asset at a higher price.
Bitcoin’s climb to $20,000 as well as the Dot Com bubble saw this theory in practice. However, those bubbles pale in comparison to the U.S. federal debt. Erik Voorhees, chief executive of ShapeShift, took to Twitter to reveal the outrageous debt of the U.S. government and called it the “biggest financial bubble in the world.”
According to ShapeShift’s top honcho, the U.S. federal debt is a massive bubble. That’s because it has been in an exponential rise. People are being advised to buy this debt regardless of whether the U.S. government has the capacity to pay them back.
Everyone knows that the U.S. government cannot be insolvent because it can simply print U.S. dollars to meet its debt obligations. In an economic sense, this is known as the Modern Monetary Theory (MMT) and it is emboldening politicians to borrow more money.
MMT Exacerbates the Issue of Fiscal Irresponsibility
In August, the Senate passed a bill that would suspend the debt ceiling until 2020. This means that the United States government can issue an unlimited amount of Treasury notes. This would further increase the U.S. federal debt. According to advocates of MMT, this is not a problem because the U.S. will never run out of dollars. It can continue to accumulate debt as long as someone is willing to buy government bonds.
Because of this practice, the gross federal debt as percent of GDP has risen to over 104% in 2018. This is the highest level since World War II.
At current levels, the federal debt appears to be unsustainable. According to a World Bank study, countries whose debt-to-GDP ratios surpass 77% experience a decrease in economic growth. In fact, every percentage point above 77% takes a toll as it costs countries 1.7% in economic gains. At current debt-to-GDP levels, if this assumption is correct, the U.S. takes a 45.9% hit in economic growth.
Hans, a senior quantitative researcher at Ikigai, also sees the fiscal irresponsibility of taking on more debt. The analyst told CCN.
Because we hold the world’s largest reserve currency we can simply print money which will keep working until it doesn’t.
We’re abusing our privilege and we lack the political will or financial understanding or the pain to understand that this is a simmering emergency that nobody wants to deal with.
No one wants to deal with this problem just yet because someone is always raring to buy the safest asset in the world in the form of U.S. Treasuries. That’s why Erik Voorhees called it as the “strongest example of the greater fool theory.”
This article was edited by Sam Bourgi.