Business

Erik Gibbs

US Federal Reserve chief “very worried” about skyrocketing debt

If there was ever a substantial amount of evidence to support the need for cryptocurrencies, this is it. The chairman of the U.S. Federal Reserve, Jerome Powell, has publicly stated that he is “very worried” about the state of the U.S. economy, adding that the country has a negative debt balance of $21.9 trillion.

According to a report by CNBC, The Fed chief made his remarks while speaking at The Economic Club of Washington, D.C. yesterday. He pointed out that the annual deficit in the U.S. has reached sustained amounts of more than $1 trillion and that he is “very worried about it.” He added, “The long-run fiscal, non-sustainability of the U.S. federal government isn’t really something that plays into the medium-term that is relevant for our policy decisions … It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.”

Part of the issue facing the U.S. economy revolves around its “quantitative tightening” policy. This was introduced in response to counter the “quantitative easing” policy that was implemented in an effort to shore up the economy in the wake of the global economic crisis. The tightening policy allowed the Fed to reduce the number of U.S. Treasure Bonds it purchased by not renewing those bonds. As a result, the Reserve now earns less interest on the bonds it holds, which reduces the Treasury’s contributions to the economy.

Through the reduction in contributions, the government debt increases and has a higher interest rate tacked on, creating a worsening cycle of increasing debt.

The result could be a “debt bomb” for the U.S. economy. In April of last year, Satyajit Das, a banker and author, stated, “A decade of unprecedently low global rates and abundant liquidity appears to have encouraged a spree of public and private debt accumulation. Higher interest rates will exacerbate the risk of financial distress for highly indebted corporate and sovereign borrowers.”

Wall Street’s Jeffrey Gundlach has stated that he believes the Fed could be on a “suicide mission” by raising interest rates at the same time the debt in the country is increasing.

If the economy were to suffer a collapse, crypto holdings in personal wallets would be immune from any fallout. This is yet another reason why digital currencies are becoming more important, and more popular, in a changing economic environment.

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