Blockware: How Debt Spiral Makes $1,000,000 Bitcoin Easy
Interest rates remain near their highest level in 15 years. That’s good news for savers, as today’s rates can offer a real return after inflation. However, one consequence of this trend is that debt costs are soaring.
While consumers are scaling back on debt at today’s rates, governments don’t have that luxury. The costs to finance government debt have now also soared. In the United States, the Treasury is now paying more than $1 trillion annually just on interest payments on the debt.
This trend could result in a debt spiral. That’s when debt soars parabolically due to the rising costs of financing that debt.
For instance, much of the short-term Treasury debt from the pandemic era had yields near zero percent. With rates now over 5%, the costs to finance the same debt have soared by thousands of percent.
In some instances, the Treasury Department has had failed bond auctions. That means they’ve had to adjust prices lower and yields higher to sell needed debt.
If a debt spiral occurs, there could be a major financial crisis. Governments may try to avert a debt crisis by printing money and covering up the problem.
If that happens, inflation could soar again. That could be good for assets such as gold, and could even help fuel further rises in bitcoin.