The air around global finance feels a bit thin these days, doesn’t it? For years, those of us watching the crypto space have heard whispers, then shouts, about the shaky ground beneath traditional money systems. Now, it seems, some very loud voices are joining the chorus. Think Elon Musk, for one. He recently took to X, his social media platform, to share some rather pointed thoughts on the fiscal health of the United States.
- Musk’s comments and others highlight concerns about the U.S. fiscal health, including the national debt and deficit. These concerns are causing investors to look for alternatives to traditional U.S. assets.
- The article highlights the growing interest in Bitcoin and gold as potential alternatives to traditional investments. Corporate holdings of Bitcoin have more than doubled in a year.
- The article also explores the idea that the current monetary system, based on debt-based fiat money, may be unsustainable, and that alternatives like cryptocurrencies could become more important.
Musk’s recent comments, particularly his strong words about former President Donald Trump’s tax bill, highlight concerns that have been brewing for a while. That bill, for instance, is set to add another $2.4 trillion to the national deficit over the next decade. This comes at a time when investors are already looking for exits from typical U.S. assets, turning instead to things like Bitcoin and gold.
Consider the numbers. The U.S. fiscal deficit stood at $1.8 trillion in fiscal year 2024. The national debt? A staggering $36 trillion today. And the annual interest payments on that debt alone amount to $1.13 trillion. It’s a lot of zeros, isn’t it? Enough to make anyone pause and wonder.
When someone as widely followed as Musk speaks up about these financial worries, it tends to make waves. One immediate effect could be an accelerated move away from traditional U.S. investments. Is it just a coincidence that corporate holdings of Bitcoin, now nearing $85 billion, have more than doubled in a year? Or that a Chinese firm, Webus, recently filed with the SEC to hold a $300 million XRP strategic reserve?
Another outcome might be that lenders, worried about the government’s ability to pay its bills, will demand higher inflation-adjusted returns for their money. This means bond yields could stay stubbornly high, making the overall fiscal situation even more complicated and potentially slowing economic growth.
The Illusion of Control
For a long time, Bitcoin enthusiasts have been sounding the alarm about this very day. As a former CoinDesk employee once put it, “Crypto may not have all the right answers, but it does ask correct questions.” The popular idea among many in the digital asset world is that the U.S. government is, in essence, bankrupt, and the dollar is on a path to collapse.
Elon Musk seems to agree, stating that the government risks bankruptcy if it doesn’t restore some fiscal prudence. In a way, you could argue the government has been theoretically bankrupt for decades. How so? Look at the repeated instances of raising the debt ceiling over the years.
The first federal debt limit was set way back in 1939, at $45 billion. It gave the Treasury flexibility, but within a set boundary. Since then, that boundary has been hit and moved again and again. Each time, it’s a sign of fiscal strain, and some might say, a way to hide a deeper financial problem. As of 2025, that debt limit sits at $36 trillion. Yes, trillion.
This reminds me of a joke from an Indian standup comedian. He talked about government officials raising the “danger mark” during floods. They did it to create an illusion of control, to make things seem normal, even as the water kept rising. Raising the debt ceiling, in a similar vein, has often felt like an attempt to mask the country’s underlying fiscal issues.
It’s like patching a leaky roof with a bigger tarp every time it rains harder. Eventually, you have to wonder if the whole structure needs more than just a patch.
When Money Itself Becomes the Problem
For at least ten years, Bitcoin advocates have argued that the very foundation of our monetary system is broken. They say we need to fix “money” itself, especially the debt-based fiat money we use every day. And they might have a point. Across the developed world, government debt-to-GDP ratios have climbed past 100 percent. This suggests that the ability of debt-based fiat money to generate real economic growth has diminished.
A blog post from the Mises Institute once described this debt-based fiat money, which is essentially paper money with a government stamp and no physical backing, in stark terms. They explained that every dollar of the monetary base comes into existence with a matching increase in public debt. Then, private banks use that base to create even more dollars, each tied to an increase in private debt.
The post went on to say that if everyone, both private citizens and the government, were to pay off all their debts, the supply of U.S. dollars would almost disappear. It’s a system, they noted, that is “tragically absurd.”
What does a debt-to-GDP ratio above 100 percent really mean? It means the total debt a government holds is greater than the entire economic output of the nation for a year. In such a situation, every extra dollar the government borrows and puts into the economy actually generates less than a dollar in return. The impact, or multiplier effect, shrinks. It’s like trying to fill a bucket with a hole in the bottom.
Think of it this way: the benefit you get from each additional dollar spent to spur growth becomes negative. This suggests that more debt no longer helps the economy grow. It might even hurt it. Imagine eating your favorite ice cream non-stop for days, just as governments have borrowed money for decades. Eventually, you’d feel sick. That’s where we are with fiscal finances and debt-to-GDP ratios in the U.S. and other advanced nations.
Looking Ahead: The Path to Recovery, or Something Else?
So, what happens next? Economist Russel Napier, who knows a thing or two about debt and fiscal policy, has outlined some steps governments might take to bring those debt-to-GDP ratios down. One common approach is to engineer higher nominal GDP growth through a structural level of inflation. This is what many countries, including the U.S. and the U.K., did after World War II to effectively inflate away their massive debts.
Allowing moderate inflation to slowly chip away at the real value of the debt could lighten the burden of debt servicing and bring the ratio down. If this happens, it could certainly boost demand for assets like gold and, yes, Bitcoin. Other potential steps include devaluing currencies, implementing capital controls, and using financial repression. All of these could create a favorable environment for alternative investments, cryptocurrencies included.
On a lighter note, reducing fiscal spending, a strategy that Trump initially championed, might be the only clear path to getting the economy back on track. It’s a bit like a medical analogy.
When your body gets too much sugar for too long, your cells can become resistant to insulin. This leads to type 2 diabetes. Doctors often suggest fasting to help restore insulin sensitivity. Similarly, reining in government spending could be the only way to genuinely lower the debt-to-GDP ratio below 100 percent. This would, in turn, help restore the debt-based fiat system’s ability to generate growth.
But what if governments don’t or can’t make these tough choices? What if they fail to get a handle on the debt? Then, the debt-based fiat system might truly be at its end. This would certainly intensify the search for alternatives, with blockchain and crypto standing out as very real possibilities. We’ll all be watching to see how this story unfolds.
