How close is the US to a debt trap? We are all accustomed to thinking in linear terms. But exponential growth is all around us. Exponential systems grow without bound until they collapse.
What is an exponential? It’s anything with compound growth. The only way for the collapse to be averted is for inflation to devalue the debt faster than the interest can accumulate. That makes it possible to issue more debt as a solution to lack of funds to service the debt.
On yesterday’s show we talked about the prototype of the US version of central bank digital currency. The digital dollar.
What if the roll-out of the digital dollar wallets also comes with it, the “investment” in US government treasuries?
It’s almost the perfect solution to the liquidity shortage. If there are not enough buyers for US Treasuries, why not offer those who have a digital wallet an incentive to keep their assets in a higher yielding account at the Fed? That higher yielding account to be backed by US Treasuries. How perfect. Instead of treasuries being purchased exclusively by rich investors, and a small number of institutional buyer, why not eliminate the friction?
Host: Victor Menasce