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Bitcoin, Bankruptcy, And The Big Beautiful Bill
NEW YORK - SEPTEMBER 15: A trader works on the floor of the New York Stock Exchange September 15, ... More 2008 (Photo by) Getty Images
With the passage of the One Big Beautiful Bill, Washington's balance sheet is now the largest in the republic's history. Roughly $40 trillion of federal obligations are owed against a $29.9 trillion economy, which means the debt-to-GDP ratio may rise far above the 124 percent recorded in December 2024.
The figure is enormous but not unprecedented in historical terms. It is important that we look to history to understand our current moment, rather than either reflexively panicking or 'trusting the plan.'
The United States breached the hundred-percent threshold once before in 1946 when wartime issuance pushed public debt to 119 percent of GDP. Britain emerged from the Napoleonic era at more than 250 percent. Both nations eventually worked their burdens down because institutional credibility remained intact and, crucially, because early-industrial technologies radically improved economic output. However, that path is not preordained. Japan has hovered near 250 percent for decades while seeing stagnant real wages.
When the Western Roman Empire disintegrated in the fifth century, it did so with almost no funded debt. Its fatal constraint was the tax base. Economic historians have chronicled the centuries-long losing battle fought by Roman emperors to stabilize and expand the sources of tax revenue that kept the state solvent.
Among many methods deployed, the most common was to debase the circulating coins and inflate the money supply. This merely accelerated widespread refusal of Roman money, and currency failures left the state unable to pay armies or maintain infrastructure.
The United States economy is vastly different from ancient Rome's, with one important exception: there remains today the same temptation to finance public promises with money created out of thin air. Whereas Rome lacked a bond market and so clipped coins out of desperation, Washington enjoys the deepest markets in the world and still issues new dollars to pay off politically connected elites. That institutional advantage will last only as long as global confidence endures.
Confidence decays when the marginal unit of debt fails to buy a commensurate increase in productive capacity. Foreign creditors will continue to finance U.S. deficits only so long as Treasury securities remain the least ugly 'safe-haven' asset.
Today, techno-optimists (which includes this writer) note that the next productivity wave may blow away anything we could currently anticipate. AI, robotics, and abundant power from advanced fission and early-stage fusion could lift total-factor productivity as much as the internet did, or even many times more.
Yet, relying on growth alone duplicates Rome's error in reverse because it presumes away hard political constraints. President Trump may be banking on growth as a solution to our debt spiral, but even a sustained, unprecedented productivity boom denominated in dollars leaves Congress and cantillionaires free to siphon off as much of this new wealth as they can. And make no mistake, they will do their very best.
The Cantillon Effect refers to the disproportionate gains captured by those closest to new money creation. It thrives today in the venture carry trade and the revolving door between K Street and Wall Street. So long as that dynamic endures, political actors will arbitrage growth for personal gain irrespective of aggregate prosperity, ensuring that nominal advancements leak out through privileged channels. In a system of entrenched fiscal dominance, GDP can rise while living standards fail to keep pace because the unit of account is melting.
The deeper problem than the debt itself is an incentive structure where control of the money printer is the ultimate political prize. Bitcoin And The Escape From The Debt Spiral
Bitcoin offers a way out because it removes the money printer from the political calculus. The supply of bitcoin is perfectly stable and enforced by a distributed network whose participants have no authority to change it. The supply of money thus becomes an external, physical reality, as opposed to a policy lever. This alters the behavior of consumers, investors, and politicians. Savers can plan on real returns that survive the electoral cycle. Investors can price risk and returns more accurately, making capital markets much more efficient. And governments must fund programs (and wars) transparently through taxes or genuine borrowing.
Bitcoin confronts the Cantillon dynamic head-on. Increases in the supply of bitcoin are algorithmically scheduled and transparent. Powerful people cannot lobby for preferential dilution. Any attempt to raise the supply of bitcoin as defined in its protocol would splinter the network via a contentious hard fork – an economic suicide pact that no rational faction accepts. This makes bitcoin exceedingly stable. It is a monetary Schelling-point that even gold cannot occupy. History shows that even when sovereign currencies are tied to gold, governments readily suspend convertibility when politically convenient.
Critics protest that a fixed supply is inherently deflationary and thus incompatible with growth. However, that argument conflates demand-collapse deflation with productivity-driven cost declines.
In a high-innovation environment, a currency that appreciates modestly in real terms can harmonize economic incentives. Savers need not chase speculative yield, entrepreneurs still finance projects via equity, and wages adjust upward in purchasing power rather than just nominally. If the United States does benefit from an AI and energy-fueled productivity renaissance, bitcoin's rules-based monetary layer would prevent the dividend from being financialized into ever larger deficits.
Empires collapse when their monetary systems, which should be a reflection of the development and movement of real resources, no longer correlate to reality. They thrive when they manage to convert technology into productive capacity without distorting the market with seigniorage and self-dealing.
The coming decade presents the United States with a trilemma. Our options are to chase growth and tolerate inflation siphoning away most of the progress, impose austerity and trigger a populist backlash, or adopt a neutral monetary protocol and accept the discipline it implies.
Growth alone is a necessary but insufficient precondition to a new golden age, and bitcoin supplies the missing ingredient. A thermodynamic protocol for digital money combined with dramatic AI and energy breakthroughs could pull us out of our debt spiral and allow technological progress to unlock an unprecedented increase in quality of life.
