We often hear about the national debt and the staggering amount of money it represents. But it’s not like we get a bill for it. We don’t directly pay our country’s debts, so the number doesn’t really hit home for us. That begs the question, how does your country’s debt actually impact you?
National Debts are Rising Worldwide
What’s coming next? Our most recent article layed out, “Bitcoin as the New Gold Standard” by Kenny Fowler
The national debt of several countries was already high before the coronavirus pandemic ever revealed itself. As of April 2020, the United States had a debt of 104% of its GDP. Japan had a debt of a whopping 235% of its GDP. Much of Europe is in the same situation, with Belgium, Portugal, Italy, and Greece all boasting national debts between one and two times their GDP. Just as the Great Recession increased these national debts in 2008 and 2009, the governments of the world in their response to the coronavirus pandemic will go into even more debt. The signs are already clear—massive stimulus packages combined with contracting economies mean that when all is said and done, the ratio of debt to GDP will grow at an even larger rate than it did during the Great Recession.
Effect of a Country’s Debt on Its Citizens
“The Austrian Way” by Aaron Koenig
When governments increase their debt, central banks often engage in quantitative easing. This is the practice by central banks of purchasing government bonds in order to drive up the price of particular assets. The combination of an increase in government debt with the central bank’s purchasing of bonds essentially means that the central bank is buying the debts of the government. With supply remaining constant, this injection of money will cause prices to go up. This manipulation of the currency affects different countries in different ways. In Japan, quantitative easing has been practiced for decades. But the Japanese are such prolific savers that their central bank’s inflation of 2% is never reached. Where the impulse for saving is low, as in the United States, there is no natural limit to prevent the money supply from getting out of control.
When inflation accompanies these growing debts, as it often does, it can cause issues in every facet of society. Inflation typically appears in some industries before others. This can cause supply issues for businesses if one or more of their supplies costs more than expected. Companies often have to compensate for the higher supply costs by passing higher prices on to customers. In this way, inflation cascades throughout the economy little by little. Once inflation has fully set in, every unit of fiat currency earned before that point is drained of its value. It simply isn’t worth as much as it was when it was earned. This hurts those with lots of savings the worst—pensioners, retirees, and those with high amounts of wealth. Those living on fixed incomes are also affected negatively. It also puts downward pressure on wage earners as companies look to cut costs anywhere they can to compensate for the higher supply costs. And those wage earners, if they do manage to make the same amount of money, find that their money is worth less than it was before.
How Can You Avoid the Burden of National Debt?
It is impossible to completely avoid the burden of the national debt as long as fiat currency makes up such a major part of the world economy. Fiat currency has long abandoned any role it ever had as a store of value. It is now simply a tool for central banks to manipulate the activities of consumers.
When the central banks feel the economy is too slow, they print more money. When the central banks feel the economy is getting too hot, they stop printing more money. They have various tricks for how the money is distributed. They lower interest rates to encourage more borrowing or print more money and directly buy government bonds with it—or in the case of the coronavirus, they print money and mail checks to millions of people. Checks in the mail are great if you really need them, and this is not to begrudge anyone for getting desperately needed financial assistance. But when you consider the massive increase in the supply of money unleashed to distribute that stimulus, it should give pause to anyone holding funds in fiat currency.
The simple fact is that fiat currency cannot be trusted as a store of value. This goes not only for wealth but for small amounts of money as well. Bitcoin, in contrast to fiat currency, has a limited supply that cannot be manipulated by the whims of central banks. Census products, like the Census Note, make simple and convenient ways to store and spend Bitcoin.
National debts are not something that people generally think about on an individual level. But the fact is that national debt affects us because governments invariably print more money to pay these debts. The right amount of money supply increase will avoid the negative effects of inflation, but too much “help” from the central banks will result in way too much money in circulation and cause prices to rise, creating issues across an entire economy. You can avoid the negative effects of inflation and preserve the value of your money by using Bitcoin.