Bitcoin and the debt trap: What effect does the US budget have on BTC?

Bitcoin BTC and USD bills – negative interest?

Currently, there is no doubt that Bitcoin is dependent (correlated) on the US stock market. The movements and vitality of the world’s largest economy is also a key factor in the development of the Ethereum Code price. How dangerous can the debt trap of the USA and the high budget burden for Bitcoin become?

In this article we want to get an overview of the current situation in the USA. How high is the debt in relation to GDP and what are the forecasts for the future?

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Bitcoin and the debt trap in the USA

Every private person knows that debts should only be taken out in absolutely exceptional cases. Examples are a loan for the construction of your own house or the financing of a business. Debts for consumption such as cars, electronic equipment or vacations should be avoided as a matter of urgency.

Taking out debt should always be based on your own financial strength. For example, as a private person, you can use your annual net income and put this in relation to the amount of credit taken out.

The usual process is similar for states. The debt of a state is measured not only in absolute terms, but above all in relation to the gross domestic product. This gives us a percentage that indicates how high the ratio between the debt and the sum that a state „produces“ in the course of a year.

The USA is now on its way to reach historic highs, and next year will see its debt exceed 100% of GDP (=GDP) for the first time in US history.

USA Government debt

Under the assumption that the previous growth will continue at the same rate, the mountain of debt in the USA will continue to grow steadily in the coming decades.

Problems here include public health care spending, but also interest that the USA will have to repay.

Excursus: Debt in the Eurozone

In order to put the dimension into perspective, we would like to venture a brief digression into the euro zone. In the chart below we see the figures for various EU countries as well as the European average.

This shows that even in the EU many countries exceed the 100% GDP debt mark. This includes large economies such as Italy, France and Spain. At 79.5%, the average of the 27 EU countries is still below the level of the USA.

If we look at Germany, we see a clear difference to the USA with 61.3%. But now let’s come back to Bitcoin (BTC).

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Bitcoin knows no debt system

First of all, we have to note that a high debt burden massively limits the flexibility and the actual scope for trade of states. An escalating debt burden endangers financial stability.

Here we already have the first point. How will Bitcoin behave if the debt burden in the USA continues to increase? – We have already seen this year that BTC suffered significantly from the movements of the US stock market at the peak of the corona effects.

The link to its performance and the strength of the US dollar remains in place. Therefore, if the decoupling scenario does not materialize, an escalating debt burden could become a danger.

After all, high debt levels naturally raise the question of refinancing. So there is always the option to repay debts. Under the assumption of a medium-term increase in interest rates, however, this will naturally become more and more expensive and thus more difficult to realize. So how can debt be refinanced if interest rates remain low?

Most likely with follow-up financing, which in turn requires new money, or through the cloak of a money supply increase. The result is called inflation.

 

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