How Is the Current Debt Situation Looking?
The picture above obviously represents the world as a whole. World debt has continued to be an ongoing issue that does nothing but accelerate. As you can see from the chart, the United States owns a big piece of the pie, accounting for 31.8% of the global debt. In second place comes Japan with close to 19% share of global debt. The United States has accumulated around 20 trillion in government debt which is more than a problem. The country as a whole continues to run deficits which will be interesting going into 2018. The reason we say this is because the Fed continues to mention interest rate hikes. The reason the Fed wants to increase rates is to slow factors such as inflation which can result in economy overheating. How will the United States 20 trillion in government debt react to something like this? (MarketWatch)
What Do Higher Rates Mean?
For a while now it's evident interest rates have been low. What that means is that for the longest time, its been easy to borrow money in a sense. Low interest rates have created a society where banks are willing to lend capital to consumers at low rates. Consumers/Investors have had the ability to acquire money for reinvestment at lower costs. Eventually this creates inflation because there is more money in the ecosystem driving the price up on goods. In order to lower inflation, the Fed has decided to raise interest rates to "slow down the economy" and lower inflation. The Fed has begun to slowly raise interest rates. In 2015 there was 1 rate hike. They then raised rates 1 time in 2016 and then 2 times so far in 2017. It may be beneficial to things like controlling inflation, but how does it benefit the deficits we face?
Deficits and Increasing Interest Rates
Raising interest rates can have many benefits such as controlling inflation and providing "savers" with higher rates on their safe investments, but at the end of the day what happens to 20 trillion of debt? Many studies out there have shown a negative impact on increasing rates. When the U.S is in 20 trillion of debt at low interest rates, what happens with higher interest rates? It gets super messed up because as rates are increasing, now the U.S is paying higher interest rates on 20 trillion of debt. It becomes very messed up to even think about. How in the world do you pay higher interest on debt you couldn't control at low rates? Some studies suggest that for every 1% increase in interest rates, that could add 200 billion to the annual deficit. A 2% increase in rates could add 400 billion to the annual deficit. It's very troubling to think about and we believe it's one of the reasons CryptoCurrency has become so popular.
CryptoCurrency Growth
The growth of Cryptocurrency is unbelievable.... Over the years you see the chart above of Bitcoin which has become the worlds largest crypto. Yes you are not seeing things, Bitcoin was $13/coin not too long ago now trading @ $6,139/coin. The growth of crypto has grown around the struggle of the global economy to efficiency handle their currency. With the world economy, countries have continued to print money to meet debt obligations. This has evolved into deficits that not too many people have any idea how to control. Bitcoin for example is a whole different concept. With Bitcoin, there is only a certain supply of it. It can't be printed like money and therefore creates value right there. As more countries have continued to use Bitcoin, it has driven the price up. Supply and demand is all Bitcoin. If there is only a certain supply of something but demand is going up, the price of Bitcoin will continue going up. We have seen everything from merchants beginning to accept Bitcoin, to people beginning to sell their real estate with Bitcoin. Bitcoin has made transactions efficient where people can send money to other people instantly. This has opened the doors to all types of avenues such as business operations and domestic to international transactions. As the U.S and other countries continue to struggle with deficits, they will continue to print money hurting the overall value of the currency. On the other hand as Bitcoin continues to gain traction it can continue generating demand which could continue sending the price up.
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