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In this chapter from The Satoshi Papers, Avik Roy explores the U.S. government’s looming fiscal crisis and presents three potential responses from the United States: restriction, paralysis, or assimilation. Could Bitcoin emerge as a solution—or spark further conflict?
Introduction
Scholars dispute whether it was Mahatma Gandhi who first said, “First they ignore you, then they laugh at you, then they fight you, then you win.” What cannot be disputed is that advocates of bitcoin have adopted the aphorism as their own.
Bitcoiners commonly prophesize that at some point, bitcoin will replace the US dollar as the world’s predominant store of value.[1] Less frequently discussed is the essential question of exactly how such a transition might take place and what risks may lie along the path, especially if the issuers of fiat currency choose to fight back against challenges to their monetary monopolies.
Will the US government and other Western governments willingly adapt to an emerging bitcoin standard, or will they take restrictive measures to prevent the replacement of fiat currencies? If bitcoin does indeed surpass the dollar as the world’s most widely used medium of exchange, will a transition from the dollar to bitcoin be peaceful and benign, like the evolution from Blockbuster Video to Netflix? Or will it be violent and destructive, as with Weimar Germany and the Great Depression? Or somewhere in between?
These questions are not merely of theoretical interest. If bitcoin is to emerge from the potentially turbulent times ahead, the bitcoin community will need to contemplate exactly how to make it resilient to these future scenarios and how best to bring about the most peaceful and least disruptive transition toward an economy based once again upon sound money.
In particular, we must take into account the vulnerabilities of those whose incomes and wealth are below the rich-nation median—those who, at current and future bitcoin prices, may fail to save enough to protect themselves from the economic challenges to come. “Have fun staying poor,” some Bitcoiners retort to their skeptics on social media. But in a real economic crisis, the poor will not be having fun.
The failure of fiat-based fiscal policy will inflict the most harm on those who most depend on government spending for their economic security. In democratic societies, populists across the political spectrum will have powerful incentives to harvest the resentment of the non-bitcoin-owning majority against bitcoin-owning elites.
It is, of course, difficult to predict exactly how the US government will respond to a hypothetical fiscal and monetary collapse decades into the future. But it is possible to broadly group the potential scenarios in ways that are relatively negative, neutral, or positive for society as a whole. In this essay, I describe three such scenarios: A restrictive scenario, in which the US attempts to aggressively curtail economic liberties in an effort to suppress competition between the dollar and bitcoin; a palsied scenario, in which partisan, ideological, and special-interest conflicts paralyze the government and limit its ability to either improve America’s fiscal situation or prevent bitcoin’s rise; and a munificent scenario, in which the US assimilates bitcoin into its monetary system and returns to sound fiscal policy. I base these scenarios on the highly probable emergence of a fiscal and monetary crisis in the United States by 2044.
While these scenarios may also play out in other Western nations, I focus on the US here because the US dollar is today the world’s reserve currency, and the US government’s response to bitcoin is therefore of particular importance.
The Coming Fiscal and Monetary Crisis
We know enough about the fiscal trajectory of the United States to conclude that a major crisis is not merely possible but probable by 2044 if the federal government fails to change course. In 2024, for the first time in modern history, interest on the federal debt exceeded spending on national defense. The Congressional Budget Office (CBO)—the national legislature’s official, nonpartisan fiscal scorekeeper—predicts that by 2044, federal debt held by the public will be approximately $84 trillion, or 139 percent of gross domestic product. This represents an increase from $28 trillion, or 99 percent of GDP, in 2024.[2]
The CBO estimate makes several optimistic assumptions about the country’s fiscal situation in 2044. In its most recent projections, at the time of this publication, CBO assumes that the US economy will grow at a robust 3.6 percent per year in perpetuity, that the US government will still be able to borrow at a favorable 3.6 percent in 2044, and that Congress will not pass any laws to worsen the fiscal picture (as it did, for example, during the COVID-19 pandemic).[3]
The CBO understands that its projections are optimistic. In May 2024, it published an analysis of how several alternative economic scenarios would affect the debt-to-GDP ratio. One, in which interest rates increase annually by a rate of 5 basis points (0.05 percent) higher than the CBO’s baseline, would result in 2044 debt of $93 trillion, or 156 percent of GDP. Another scenario, in which federal tax revenue and spending rates as a share of GDP continue at historical levels (for example, as a result of the continuation of purportedly temporary tax breaks and spending programs), yields a 2044 debt of $118 trillion, or 203 percent of GDP.[4]
But combining multiple factors makes clear how truly dire the future has become. If we take the CBO’s higher interest rate scenario, in which interest rate growth is 5 basis points higher each year, and then layer onto that a gradual reduction in the GDP growth rate, such that nominal GDP growth in 2044 is 2.8 percent instead of 3.6 percent, the 2044 debt reaches $156 trillion, or 288 percent of GDP. By 2054, the debt would reach $441 trillion, or 635 percent of GDP.
In this scenario of higher interest rate payments and lower economic growth, in 2044 the US government would pay $6.9 trillion in interest payments, representing nearly half of all federal tax revenue. But just as we cannot assume that economic growth will remain high over the next two decades, we cannot assume that the demand for US government debt will remain steady. At a certain point, the US will run out of other people’s money.
Credit Suisse estimates that in 2022 there was $454 trillion of household wealth in the world, defined as the value of financial assets and real estate assets, net of debt.[5] Not all of that wealth is available to lend to the United States. Indeed, the share of US Treasury securities held by foreign and international investors has steadily declined since the 2008 financial crisis.[6] At the same time that demand for Treasuries is proportionally declining, the supply of Treasuries is steadily increasing (see figure 2).[7]
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