For a couple of decades now, the US has had a somewhat worrisome financial problem: it spends more than it earns. This is not a minor issue. When a company spends more than it earns or generates, it goes bankrupt. A family that spends more than it generates is condemned to poverty or, failing that, to no growth. Despite juggling balance sheets and finances, a government that overspends will be sending its country into crisis sooner or later.
This is the case of the US and the dollar in particular, although the latter not so much largely due to the economic power of the US and the fact the dollar is the currency of choice for most transactions. Yet it is not something to be neglected.
A couple of days ago, Anthony Pompliano, co-founder and partner of Morgan Creek Digital, published a thread on his Twitter timeline highlighting the serious financial problem the US faces.
“The government has received more federal income taxes every year since 2009, yet they lose more and more money every year,” Pompliano tweeted.
According to their data, the US Government has collected more and more income each year. Since 2009, for example, federal income tax revenues have nearly doubled.
Although the US Government has earned more revenue each year, it still continues to lose money year after year, causing a huge financial problem. “The last time the government spent less than it earned was in 2001. For 20 years, the government has lost money. Unhealthy,” says the thread.
This is an unmistakably harmful vicious circle. Citizens’ money, through taxes, is increasingly circulating into the state coffer and in turn is being mismanaged as it relates to expenditure and income issues and this without evaluating what and how it is spent, just considering the net amount.
For Pompliano this deficit has a clear date of birth:
“The problem has worsened since 1971,” he said. “We got off the gold standard, we gave politicians the ability to print money and now they are addicted to monetary stimuli. Like a drug addict, we need a major hit to deal with the shifts in the markets.”
If the problem persists, the deficit will be so high that, at some point, the bubble may burst.
What do economist says about the US’ ongoing financial problems?
Venezuelan economist Daniel Di Martino, who lives in the US, said to El American that, although a significant increase in the debt could generate a crisis concerning the dollar, now “interest rates on the debt are at historic lows and we are in a giant economic crisis where the government is right to get into debt so that the people can survive the pandemic until businesses can reopen. Debt is a long-term problem, but I doubt there will be a dollar crisis until the debt reaches much greater proportions.”
Di Martino also explained what makes the dollar stronger and safer than other currencies:
We must remember that the dollar is so valuable, and the United States can get so deep into debt because of the confidence of billions of people in the world who decide to save in dollars instead of their national currencies due to the stability and economic growth of the United States relative to other countries. For now, that has not changed, and I doubt it will. The Chinese Yuan is not stable or reliable. The Euro has many risks attached to the European Union’s future. The Japanese Yen is from a country that is in economic decline. The rest of the countries with strong currencies are relatively much smaller and dependent on the United States anyway.
With respect to public spending, the Venezuelan economist also commented that “the deficit has already skyrocketed due to the pandemic and while the economy recovers, we will rather observe the illusion that Biden will “reduce” the deficit. But this will be a lie. The deficit with or without a pandemic in 2020 was already going to be over $1 trillion and will continue to rise because of government pension and healthcare spending that is increasing faster than tax revenues.
“What we will see over the next two years is that the deficit will decrease and then increase again sharply and the fiscal situation will deteriorate,” he concluded.
Jeffesor warned about debt
The President Emeritus of the Foundation for Economic Education (FEE), Lawrence W. Reed, writes a weekly column in El American. In one of his pieces, he referred to the danger of public debt just as one of the founding fathers of the United States, Thomas Jefferson, warned about it.
“The deterioration of every government,” wrote the French philosopher Montesquieu, more than 250 years ago, “begins with the decline of the principles on which it was founded,” Mr. Reed’s text begins.
“In 1981, the country’s national debt crossed the $1 trillion mark for the first time. It took another 15 years to reach $5 trillion. In February 2019, less than two years ago, it was at $22 trillion. Today, it’s $27 trillion, which means we’ve added as much additional debt in nominal terms in two years as we did in our first 220 years as a nation.
According to The New York Times, the U.S. deficit closed at $3.13 trillion, up from $984 billion in 2019. “Rising expenditures, but also falling tax revenues, shot up the deficit by 218 percent over the previous year.”
This is important, as Reed explains, because debt is actually a direct consequence of public misspending, which is exactly what the US Government has been doing for twenty years.
Although, as Di Martino said, right now, there are urgent problems that American citizens need to solve due to the pandemic.
The fiat money risk and the Bitcoin’s surge
While taxes are being increased in several states in the country – especially the Democrats – while Republicans and Democrats agree to approve subsidies, while the US government continues to spend more than it generates; the only thing being done is to inflate and inflate a bubble that, as yet, is not dangerous, but it could be.
And there are consequences that are already beginning to be seen, why do you think the bitcoin has shot up? Because the risk of fiduciary currencies is increasing, due to how the governments of the world are printing more money than they generate by increasing their debts. And cryptomoney – like bitcoin – is out of the hands of state regulators.
Note: An exclusive interview with Mercury Cash CEO Victor Romero will soon be available on this topic for El American. In it, he will go deeper into the concept of cryptocurrency and why it is generating confidence among citizens.
It happened in Venezuela. The Bolivar, a currency that seemed strong, ended up bursting because of the socialist economic crisis generated by Chavism; and its price with respect to the dollar was simply pulverized. It happened in Argentina, once a great South American economic power, but years of Peronist populism and then Kirchnerist socialism -together with a Macri social democratic administration- ended up causing the Argentine currency to succumb.
In the end, the value of the currency is given to it by society. Will Bitcoin or another cryptocurrency presentation be able to capitalize on the “risk” of fiat money? Will Bitcoin be able to compete with the dollar in the medium-long term?
Make no mistake, the US, despite its economic exuberance, is going through a financial problem, spending more than it earns. And it has been doing so for a long time.
Although the country may have enough economic backing to support the debt, over the years, sooner or later, the weight will be even greater, and there is no economy that can support a constantly growing debt. This phenomenon has been seen frequently in Latin America.