GM frens,

No major price action news this week: Bitcoin regained USD70,000 at the beginning of the week and has been hovering around that level ever since.

The halving is about three weeks away, so we could see more downward volatility in the short term. But as I've said in several newsletters, I'm very bullish about this year. It's basically all systems go for new all-time highs.

Today I want to expand on my newsletter from two weeks ago "Your money has lost at least 1/5 of its value in the last 4 years". In that newsletter, I talked about why understanding inflation is critical to understanding bitcoin.

Now, I want to explain why understanding the national debt is crucial to understanding why investing in bitcoin is a good bet.

Let's dig in.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

What is the national debt?

The national debt occurs when governments spend more than they take in and when they have to borrow money to cover that deficit. Don't confuse this debt with consumer debt (credit card debt, car loans, mortgages, etc.). Basically, it's what governments owe their creditors.

The national debt has three main drivers:

1. Demographics: The baby boomers are aging. So the labor force is shrinking.

2. Rising health care costs: Aging baby boomers need a lot of health care.

3. Inadequate revenues: In most developed economies, tax systems do not generate enough revenue to cover the spending that policymakers have enacted.

In addition, most developed economies face several other factors that drive up the national debt, such as immigration pressures and freak events like bank runs and pandemics.

All of these things add up to a lot of money.

Can governments increase their revenues?

In general, governments have a limited set of tools to raise revenue. They can either:

1. Raise taxes: While this will be popular with some segments of the population, it will be unpopular with others. In addition, if governments raise taxes too much, businesses and high-income earners may leave.

2. Debase the currency: Debasement refers to lowering the value of a currency by printing money. Although it causes inflation, the inflation is not immediately felt. As a result, governments usually get away with debasement in the short term without attracting too much attention.

As noted in this newsletter, governments can print money because modern money is not tied to anything. It can literally be printed out of thin air.

So what is the size of the national debt?

Now let's look at some numbers. We'll look at the US because it's the largest economy in the world and its currency, the US dollar, is the world's reserve currency.

So, the US national debt is USD34.6 trillion.

I understand if this number doesn't mean much to you, because the human brain is not designed to understand big numbers with lots of zeros.

But here are two charts to give you an idea of how bad the US national debt is.

Let's start with the chart below, which shows you how the US national debt has evolved since 1789. As you can see, it started to spiral out of control in the 70's. Keep in mind that the US went off the gold standard in 1971. This means that the US untied its money supply from gold and switched to modern money that can be printed out of thin air.

The second chart I want to highlight is the US national debt as a percentage of gross domestic product (GDP). Comparing a country's debt to its GDP shows the country's ability to pay down its debt. The US debt to GDP ratio is over 120%. It surpassed 100% in 2013, when both debt and GDP were about USD16.7 trillion.

The US national debt is a concern for everyone because of its role as the world's largest economy and the US dollar's role as the world's reserve currency.

But things aren't looking so good elsewhere. Here are the top five countries with the most debt.

Where is this going?

The numbers above are bad, but I'm sorry to break the news to you, they're literally getting worse by the day.

First of all, the US national debt is growing at the speed of light. The US debt load is increasing by about USD1 trillion every 100 days.

Second, it is becoming increasingly expensive for the US to carry so much debt. According to a recent analysis by the Congressional Budget Office, US spending on interest payments is projected to reach USD870 billion this year - more than the USD822 billion the US will spend on defense.

Can you believe it, the world's policeman spends more on interest payments than on defense?

In the coming years, the gap between interest payments and defense spending is projected to widen even further. Interest payments will become the fastest-growing part of the US budget.

The bottom line is that the US is trapped in an endless debt spiral, where a highly indebted nation must borrow money to pay the interest payments on existing debt. And so on. And so on.

What is the cost to the US? (And the rest of the world?)

As the Peter G. Peterson Foundation puts it:

But a highly indebted US also bodes ill for the rest of what we call the Western world. Every dollar that goes toward interest payments means less resources available to build a stronger, more resilient Western world.

What’s bitcoin got to do with it?

The problem is that there is no quick fix to this debt spiral. And since the government's toolbox for raising revenue is limited, it will most likely stick to what has worked in recent years: printing more money. Which is the equivalent of pouring oil on a fire.

Against the backdrop of America's (and the world’s) huge debt pile and the ongoing money printing, I believe bitcoin is an excellent investment opportunity.

Bitcoin is the antithesis of a national currency that can be debased away. Its supply is finite, and it gets scarcer every four years when the issuance of new bitcoin is halved. In other words, bitcoin is the ultimate hard asset.

There are other hard assets, like gold and luxury real estate, that have their merits. But compared to bitcoin, you can't divide them up easily and you can't carry them around the world.

In essence, an investment in bitcoin is a bet to hedge against the effects of America's (and the world’s) fiscal insanity.

Don't get me wrong, I'm not anti-American. I'm not gleefully watching the US burn down its house. But unfortunately, structurally, that's where things are headed.

I hope today's newsletter helped shed some light on why bitcoin is an oasis of sanity in a world based on fiscal insanity. To all the people who celebrate it, have a great Easter weekend!

Before you go, please help me get better!

Feel free to drop me an email or dm me on Instagram, LinkedIn, or Twitter with any feedback or topics you'd like to see covered in this newsletter!

Thank you!