To add to this, the government has a massive debt burden that continues to erode confidence in long dated bonds. The long end is blowing out not just in the US, but across the world, 10 and 30 yr bonds are reaching decades long highs.
This is essentially the market telling governments they don’t trust the fiscal situation over the next few decades and they demand a higher yield in order to be willing to hold its debt. They need bond rates that will beat or at least match inflation expectations. The lack of trust is based in the expectation that inflation will have to continue to run hot into the future as governments must expand the money supply and devalue the currency at a faster and faster rate in order to service the ballooning debt that continues grow.
If inflation runs too hot, the federal reserve has to step in to raise interest rates in order to curb inflation, however the more they raise rates, the worse their debt burden becomes, which requires them to expand the money supply to buy back their own debt, which adds liquidity into the system, which makes inflation worse. It is a fiscal pickle and there are only two viable ways out: default or inflate it away. Governments always choose the money printer and especially now because a default at this scale would be catastrophic, so they’ll not only sell more debt but also continue to buy back their own debt which expands the money supply, which causes the prices of hard assets to go up, like gold, collectibles and Bitcoin as that new money looks for a home to beat inflation. The clearest signal of this dynamic was when the treasury said they would double their long end buybacks and bitcoin rallied 50% in a month.
Any collapse in the USD is probably decades away, but on the way there the government has to continually pump liquidity into the system to service its expanding debt.
But that’s not all, AI will accelerate this process. AI is going to push the cost of goods down to the marginal cost of production. This is good for people in one sense because prices of things, especially manufactured goods and some services, will get exceedingly cheaper over the next 1-2 decades, but deflation is bad for governments’ debt burden. Debts are fixed in nominal terms. If prices and wages fall (deflation), tax revenues collapse, making the existing nominal debt burden even harder to service, governments need inflation. They will have to add even more liquidity/issue more debt/buyback their own debt to fight deflation.
Additionally, AI will disrupt almost every industry and valuation. Jordi Visser also has a thesis that debasement isn’t even the primary catalyst for bitcoin’s growth. He thinks that AI will have the effect of disrupting valuations of companies/stocks as it brings massive efficiency and abundance to all industries, whereas bitcoin is one of the only assets that AI can’t alter. No matter how much abundance and disruption AI brings, bitcoin’s protocol ensures there will always be a hard cap of 21 million coins. In a world where everything is being revalued by AI, bitcoin will remain a fixed, global, and highly liquid collateral asset, which along with things like Pokémon cards and gold, will serve to be reliably unchangeable as a store of excess liquidity in the economy as many other investments are disrupted and money looks for a home.
