National Debt levels and the draw of bitcoin and crypto

On September 23, 2017 the national debt level in the United States is over $20 trillion dollars. To put that into perspective, with a population of 324 million people, that is $62,232.00 per citizen. The interest owing on that debt is $14,260 per second or $449 billion dollars per year (108% of GDP). If you measured the distance to the moon and stacked $1 bills on top of each other they would equal 2,204,408 km's (equivalent to 5.73 trips to the moon). [source: nationaldebtclocks.org]

To be clear, that federal debt amount does not take into account liabilities that the government has upcoming such as pension payments etc.

The United States' position is hardly an anomaly, with the UK at $33,819 owing in debt per citizen, Japan at a whopping $71,600 owing per citizen, France at $37,519 owing per citizen, Canada at $22,857 per citizen, and Italy at $41,094 per citizen (all dollar figures are in U.S. dollars). These figures do not appear to account for amounts owing by regional governments within the countries (ie: the province of Ontario in Canada reportedly has the highest debt level per citizen in the G7). One of the sole exceptions to the global debt tsunami is China, which appears to have a debt of only $3,344 US per citizen.

The question that this raises is whether, at some point, the continuing accumulation of debt will reach a difficult end. In the 1930's the stock market in the United States suffered a sudden and violent collapse and a cascading economic tide that saw a crippling depression grip the nation and much of the world for years to come. Economists are split about whether the stock market collapse was the harbinger of these problems or simply a product of the underlying financial problems in the economy and banking and company issues.

Many economists pinned blame on the governments of the day in the 1930's for failing to come to the rescue of the private economic institutions and the shrinking money spending etc. Obama and the government that prevailed during the financial crisis in the 1990's took heed of those criticisms and came to the aid of most financial institutions that were deemed to be "too big to fail" and did avert the market panic and bank runs that the nation had seen during the 1930's. This was arguably necessary - as certain movies have noted, if the population one day all approached their banks and asked for their money, they would come to the unhappy realization that the banks do not actually have their money to return to them all.

Governments have tried to implement market mechanisms to calm the population - ie: guaranteeing banks, back-stopping them, etc., but this leads to a different concern - the business that knows that it can take increasing risks without failing is incentivized to take ever increasing risks, that are best illustrated by the housing market bubble and collapse in the United States. The EU and others have followed suit with back-stopping banks and other institutions.

The bigger modern concern is not about the potential failure of a large bank or private corporation since they have relatively stable and increasing backing from their respective nations - the bigger concern is the state of the nations themselves that back-stop these institutions.

It would seem to be common sense that the United States could not actually repay their current debt without completing tearing down their social safety net - which would seem near impossible without radically altering what the country's principals and living standards are based on and doing so for the long term.

Are these increasing debt levels sustainable for nations? What happens to debt payments when global interest rates start to return to the 5% per year historical average? If a government cannot meet its obligations it can only look inwards to its population for economic support - the large multi-national corporations or those corporations that have positioned (or will position) themselves to avoid the fall-out will not be left holding the bag - it will have to be the citizens and smaller players - the ones that can least afford to contribute and the ones that will be most severely impacted by the government's back-stopping of the larger players.

When one considers these issues, it is not difficult to understand the drive towards alternative investments other than those based in national currencies. While the current rage is the rapidly increasing interest in crypto-currencies, this is hardly the first investment that investors have looked to, in an attempt to avoid exposure to national currencies. One only has to look back to the Gold Reserve Act in the United States (passed in January 1934), which required that all gold held by the Federal Reserve be surrendered and vested in the sole title of the US treasury department. The Gold Reserve Act outlawed most private possession of Gold, forcing individuals to sell it to the treasury. A year earlier, Executive Order 6102 had made it a criminal offence for US citizens to own or trade gold anywhere in the world, with limited exceptions. These prohibitions were only relaxed in 1964 and only truly lifted by 1975.

Crypto-currencies are arguably a "one up" on gold - since they are more freely tradeable, provide for instantaneous transfer and counterparty protection, etc. Further, while gold supply can be ever increased through additional mines being found or machines that can create gold, the value of crypto-currency such as Bitcoin is fixed. It is not difficult to understand why crypto-currencies have begun to grip national and international attention.

Bitcoin itself seems to be focusing on emulating and surpassing gold as an international standard for storing and transferring wealth. The ease of divisibility also allows for easier transfer than gold - while the price of one bitcoin may be very high, the price of one satoshi or even less is not.

While it is true that there are an increasing number of crypto-currencies out there, they are not all the same and do not have the same kind of acceptance in the markets and among people. That attack would be the same as saying there are many metals in existence and so why would gold hold such value when one could just as easily trade silver or bronze or metal?

The different crypto currencies may well serve different functions in the future - bitcoin seems to be positioning itself as more of a store of wealth and settlement layer. Others, such as Bitcoin Cash, are positioning themselves in an attempt to capture a broader market of instantaneous and economical payments. While the two communities often seem to be at each other's throats, they may eventually come to accept one another as creating synergies in the market - no one thing can be everything to everyone. Others such as Ethereum, NEO and Tezos are aiming to provide solutions to different problems.