Another day, another report from the Congressional Budget Office telling the U.S. government to stop spending or risk “fiscal crisis”.
It is unsettling how common these types of stories have become. The latest report, released on Tuesday, reveals that the U.S. national debt is on pace to double as a share of the country’s gross domestic product (GDP) over the next 30 years.
The new projections, if accurate, would have the national debt reaching levels that have not been seen since the years following World War II.
Millennials, broadly defined as those who reached young adulthood in the early 2000s, are used to these kinds of headlines—along with the government’s characteristic inaction in response to them.
There is a growing sentiment among young people that the government is not looking out for their best interest, particularly with regard to the growing national debt. While today’s economy is booming, the economy of 20 years from now (when millennials will be in their prime working years) is much more uncertain.
It is for this reason why many millennials are broadening their financial portfolios beyond the dollar to include cryptocurrencies like Bitcoin and Ethereum. Non-traditional stores of value like these may be uniquely valuable investments for millennials given the dollar’s uncertain future.
Why Does the U.S. National Debt Matter?
Before getting into the value of cryptocurrencies for millennials, I feel like I must first make a stronger case as to why the growing national debt matters and what it might mean for the dollar.
The U.S. national debt is the total amount of money owed by the government. Governments enter debt in much the same way a person or organization does—by spending more money than they make. Practically speaking, governments enter debt through the sale of treasury notes, treasury bonds and treasury bills.
Deficit spending, as it is called, is a means of financing projects that the government doesn’t currently have the money to pay for. Spending in this way can provide immediate funding to programs that otherwise would have to be delayed.
When used appropriately, deficit spending can be a valuable jolt to the short-term economy. When used carelessly, however, deficit spending can quickly spiral into out-of-control debt—another problem with which millennials are all too familiar.
Governments engaged in deficit spending run the risk of focusing too heavily on the short-term and ignoring the potential long-term repercussions. According to Investopedia:
“When debt is used to fund economic expansion, current and future generations stand to reap the rewards. However, debt used to fuel consumption only presents advantages to the current generation.”
“Consumption” in the above quote includes healthcare expenditures like Medicare and Social Security, which according to The New York Times, eat up “40 percent of all federal spending.” While these social programs are invaluable to the people who rely on them, they have limited direct benefit for future generations.
This is especially true considering the fact that it is uncertain whether today’s young people will be able to collect Social Security in their older years. The Times reports that Social Security is facing long-term financial problems due to an aging population and a declining “ratio of workers to beneficiaries.”
Continued entitlement spending, along with the greatly reduced tax revenue stemming from the Trump administration’s recent Tax Cuts and Jobs Act of 2017, are the primary factors driving the CBO’s report that the national debt is set to increase over the coming decades.
The risks associated with extreme national debt are numerous and serious. Investopedia lists at least five ways that the national debt affects individual citizens:
- A reduction in governmental services resulting in a “lower standard of living”
- Reduced corporate investments “resulting in inflation”
- “An increase in interest rates [that] will push home prices down … which will in turn reduce the net worth of all home owners [sic]”
- A “reduction in the size of the private sector” and increased “growth in the size of the government”
- And finally, an increased risk of default that could cause “the country [to lose] its social, economic and political power.”
Each of these outcomes has the potential to negatively affect the dollar both domestically and in the global market.
Indeed, the purchasing power of the dollar has already seen marked declines over the last century. According to the Bureau of Labor Statistics, $1.00 in January of 1913 had as much purchasing power as $25.67 of today’s dollars.
Unless the United States can take control of its rampant budget deficits and resultant national debt, the dollar is at risk of experiencing even greater inflation over the next few decades—a burden that millennials will be forced to bear.
What Makes Bitcoin an Appealing Alternative?
A less-powerful dollar makes other currencies, including digital currencies like Bitcoin, appealing alternatives for the young investor looking to hedge their bets against U.S. inflation and interest rates.
Skeptical readers might wonder how Bitcoin’s future could possibly be more certain than the dollar’s—which is a fair point. Admittedly, the U.S. dollar is unlikely to experience a bubble-bursting event of the same magnitude that is possible in the cryptocurrency industry.
The idea here is not that millennials will (or should) abandon the dollar altogether, rather that millennials who do not want their economic future to be entirely reliant on the dollar may consider investing in digital currencies as well.
This is an argument that is frequently used to explain why Bitcoin and other cryptocurrencies might be useful for people in developing countries lacking reputable financial institutions. The value of the Brazilian Real (BRL), for example, has decreased by about 42% relative to the U.S. dollar over the last five years. For people living in countries experiencing similar economic woes, cryptocurrencies may prove to be more reliable forms of currency than those backed by their governments.
As I said, this is a relatively common argument with regard to developing countries. It is unusual, however, to suggest that this line of thinking might also be useful in first-world countries like the United States. But given all of the risks facing the United States as a result of the growing national debt—inflation, elevated interest rates, reduced social and political power, etc.—it seems reasonable to suggest that the millennial generation may want to consider cryptocurrencies as a viable alternative to the dollar.
Digital currencies like Bitcoin already have several advantages over traditional currencies that make them useful in this kind of a role.
For one, Bitcoin and many other cryptocurrencies are anti-inflationary. Bitcoin has what is called a controlled supply, meaning that the rate at which new Bitcoins are created is carefully controlled by algorithms in Bitcoin’s code. Given that the Bitcoin mining rate is stable and predictable, this makes Bitcoin’s rate of inflation much easier to anticipate.
Secondly, as a truly international currency, Bitcoin may become increasingly useful as the world continues to globalize. Bitcoin could theoretically provide access to international markets more efficiently than an inflated dollar would.
Finally, although the values of Bitcoin and other cryptocurrencies are currently wildly unpredictable, cryptocurrency prices are likely to stabilize with time as cryptocurrencies begin to achieve more widespread adoption.
For all of the above reasons, cryptocurrencies like Bitcoin may be considered uniquely valuable investments for millennials in the United States. The country’s national debt continues to grow at an unprecedented rate, and at this point, it is difficult to imagine a scenario in which today’s politicians will be willing to step up and make tough decisions in order to reduce the debt. Instead, politicians are likely to continue passing the buck for future generations to deal with.
But cryptocurrencies like Bitcoin could provide millennials with a functional store of value independent of the dollar. That way, if indeed the national debt does continue to rise and we begin to see some of the negative outcomes from the government’s attempts to pay back that debt, cryptocurrency holders will not be forced to deal with the full brunt of those outcomes.
Disclaimer: The author of this article owns a small holding in various cryptocurrencies, including Bitcoin. The information in this article is based upon current available data and the author’s views as of June 29, 2018, all of which are accordingly subject to change. The above article should not be considered investment advice. Any such advice or opinions should be sought by an independent, third-party expert over such matters.
Bio: Matthew Godshall is the editor in chief at Unhashed.com. An avid writer, Matthew is passionate about cryptocurrency, politics and all things technology.