Not because of cryptocurrencies like Bitcoin, but because of the fiscal policies, renowned economist Daniel Lacalle has expressed doubts about the survival of the US dollar.
Lacalle draws attention to the startling rise in the nation’s debt, which has topped $34 trillion and is increasing by $1 trillion per 100 days.
He contends that this tendency is unsustainable, especially in light of the recent robust employment growth and rising wages associated with the so-called recovery.
The unsustainable path of debt accumulation
The central claim of Lacalle’s thesis is the extreme speed at which debt has accumulated relative to GDP growth in the nation, which was the worst since 1930 when adjusted for the rise of public debt.
The economist emphasises the contradiction of having what appears to be a robust economy while the national debt is growing at an unprecedented rate. He casts doubt on the notion of a recovery by highlighting the declining buying power of incomes and the mounting financial burden that American people are bearing, which is made worse by negative real wage growth.
Lacalle criticises Modern Monetary Theory (MMT), a contentious economic theory that some believe gives governments the go-ahead to spend as much as they want as long as they have control over their own currency.
According to the notion, inflation is the only factor that truly restricts government expenditures.
Nonetheless, Lacalle contends that the US’s ongoing fiscal growth shows a careless disdain for the long-term stability of the economy and the dollar, even in light of an official inflation rate of 20% over a four-year period. He cautions that the ideological appeal of MMT conceals the serious risks associated with its actual implementation, eventually placing the onus of financial irresponsibility on families.
The real threat to the US Dollar
Even if Bitcoin’s price has increased dramatically, hitting over $62,000 in the face of inflation and growing national debt, Lacalle contends that the cryptocurrency is not the main danger to the dollar’s position as the world’s reserve currency. Rather, a much bigger risk is the loss of trust in the US government’s monetary and fiscal policies.
He cautions that when confidence in a government’s ability to manage its finances wanes, monetary sovereignty can be unexpectedly lost. This can set off a vicious cycle that might eventually result in greater borrowing costs, higher inflation, and the possible overthrow of the dollar.
