As time passes, it's becoming increasingly difficult to ignore the macroeconomic elephant in the room. The U.S., the world's most dominant economy, has $39 trillion in federal debt. This figure, which doesn't include the $120 trillion in unfunded liabilities (related mainly to Social Security and Medicare) that the Congressional Budget Office estimates the U.S. will have in about 30 years, has more than doubled in the past decade. It now represents 123% of gross domestic product (GDP).
Brian Armstrong, the billionaire co-founder and CEO of Coinbase, proposes a solution to the country's debt problem. It involves Bitcoin (BTC 0.66%).
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Can Bitcoin be the solution?
One of the core tenets of Armstrong's plan to tackle the debt involves amending the Constitution to include a requirement that the fiat currency be backed by a hard asset, such as Bitcoin, that has a fixed supply. This would essentially mimic the gold standard from the 20th century, which effectively ended internationally in 1971. He also suggests putting a limit on the growth of government spending.
For Bitcoin, this idea would certainly support demand and a higher price, making it a critical asset with implications for the global economy. The government's massive balance sheet introduces buying power, which can expand the Bitcoin strategic reserve.
Armstrong's blueprint basically aims to keep borrowing in check. However, it's unrealistic.
America has a spending problem. This is true regardless of the political party you support. This isn't going to change anytime soon, if ever.
CRYPTO: BTC
Key Data Points
The only fix is painfully obvious
Viewed from an individual's perspective, it's like the country constantly opens new credit cards to pay off existing bills. This has lasted so long because the U.S. dollar is the global reserve currency. The government has been able to keep printing money since there is demand for Treasuries.
Rational thinking would lead you to believe that this is unsustainable. Eventually, creditors will be less inclined to buy and hold Treasuries due to fears that the U.S. will default on its obligations. This appears to be a continuously rising risk now that the nation's annual interest payments exceed all other categories except Social Security.
But the view has always been that the country can grow its way out of the debt problem. This relates to another part of Armstrong's plan, which involves leaning heavily into artificial intelligence and robotics as a way to significantly boost productivity and GDP.
This is an ambitious proposal that sounds great in theory. And the Coinbase CEO is right in putting a spotlight on the U.S.'s precarious financial situation. However, these changes aren't going to happen.
At the end of the day, the only viable solutions to the almost $40 trillion federal debt burden are two wildly unpopular courses of action: budget cuts and higher taxes. These are unlikely outcomes.
