Global Debt Reaches Critical Levels, Is Currency Devaluation Trading Revived?

Global debt surpasses $365 trillion, IMF warns of critical levels, devaluation trading boosts Bitcoin.

Written by: Billy Bambrough, Forbes

Compiled by: AididiaoJP, Foresight News

Since the summer slump, Bitcoin and cryptocurrency asset prices have surged significantly, with some altcoins even outpacing Bitcoin—while the market continues to predict massive gains.

Earlier this month, Bitcoin's price nearly reached $90,000, just a step away, sparking a wave of bullish predictions for Bitcoin's price.

Now, as Elon Musk quietly positions for the next Bitcoin bull market, International Monetary Fund (IMF) President Kristalina Georgieva warns that the $365 trillion global debt is at a "critical" level and states, "It is time to act," as the so-called devaluation trading is pushing up Bitcoin and gold.

According to the Institute of International Finance (IIF), global debt increased by $10 trillion in the first half of this year, surpassing $365 trillion in total.

The IIF warns that debt has become a political issue, creating a "vicious cycle between elections and short-term quick fixes, along with long-term vulnerabilities formed by diminishing marginal utility of higher debt."

U.S. debt alone has soared to $40 trillion. This has led to a rift between SpaceX and Tesla billionaire Elon Musk and former President Donald Trump last year, with Musk warning that the U.S. is heading towards "bankruptcy."

Interest payments on U.S. national debt have surged to $1.27 trillion annually, surpassing defense spending and Medicaid this year, second only to Social Security.

The IIF adds: "As benchmark interest rates rise, interest expenditures are set to skyrocket, while the structural pressures from healthcare and public pension spending remain largely unresolved."

The Federal Reserve raised interest rates this month, concerned that oil prices at $100 per barrel would exacerbate inflationary pressures, thus pushing rates higher in the coming months.

Georgieva of the IMF told the BBC, "It is time to act," calling for political "courage" to take necessary measures.

Georgieva stated, "Two things must be done: reduce debt levels, prioritize fiscal consolidation, and ensure central banks fulfill their mission of price stability."

"It cannot be overstated: there must be the courage to take necessary measures. These measures are politically difficult, but they must be taken."

Out-of-control government spending was the initial catalyst for Bitcoin's creation by the mysterious Satoshi Nakamoto in 2008, and has driven Bitcoin higher in recent years; stimulus measures during the COVID-19 pandemic triggered a massive Bitcoin surge in 2021.

Nick Parkin, founder of Coin Bureau and cross-asset analyst, commented in an email: "The backdrop is favorable for devalued assets, including Bitcoin and gold. This is also part of the reason for Bitcoin's recent rise. Central bank purchases of gold have also accelerated again."

"The more major economies are burdened by inflated debt, the more they try to suppress real borrowing costs and let inflation erode the value of debt, making devaluation trading more sensible."

As Bitcoin, gold, stocks, and commodities rise, the purchasing power of the dollar and other government-backed fiat currencies has significantly declined.

Analysts at The Kobeissi Letter posted on X, stating: "The dollar has lost 23% of its purchasing power since 2020." They added that people should "hold assets, or risk being left behind."

Higher and longer inflation expectations have caused government bond prices to plummet in recent months, with U.S. Treasury yields rising sharply.

Kobeissi analysts added: "If your assets have risen 30% since 2020, in real purchasing power terms, you are just barely breaking even. Inflation has been above the Fed's 2% target for 60 consecutive months, and the bond market knows this."

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