So US inflation just hit 9.1%, the highest rate in over 40 years, and in response the Federal Reserve is maintaining its threat to continue raising interest rates and reducing money printing.
The problem is, the FED can't continue to raise rates and sooner or later it will also be forced to increase its money printing programme.
Whilst the FED hopes to reduce consumer demand by raising interest rates, those rate rises also have significant implications for US government debt payments.
The US debt burden currently stands at $30.5Tn with annual interest payments of $439Bn. Just a 1% increase in interest rates, if applied to the entire government debt, would add another $305Bn to interest payments, almost doubling them from current levels and making debt interest payments higher than the entire annual US defence budget.
This only considers the official debt burden, but if you include all the unfunded government liabilities such as social security and medicare, the true debt burden rises from $30.5Tn to an incredible $143Tn.
This is further compounded by the fact that the US is more than likely heading into a long overdue recession, which will reduce government tax receipts and increase government spending, thereby increasing the debt burden even further.
Interest rates have been so low for so long now that even modest FED rate rises have massive implications for the government budget, likely leading to increased deficit spending and even more debt.
Then you have the issue of who is going to buy all this government debt? Foreign countries aren't going to be in any rush, especially after many have watched the US arbitrarily freeze other countries' funds. Plus most other countries are also busy grappling with their own financial crises.
So that only leaves us with the buyer of last resort, the FED. Despite their claims of reducing money printing, the FED will inevitably end up reversing course and printing massive new quantities of dollars to buy up this debt.
For all these reasons, everyone knows that the FED is going to be forced to change course, reduce interest rates and start printing again.
Once the course change is announced (or even strongly suspected) we can expect to see a significant turnaround for crypto. Until that time, crypto will continue to struggle to make a significant breakout upwards.
When might the FED change course? A few people think it could be as early as August this year. Many people think it will happen in 2023 at the latest.
Throughout this period, Bitcoin has continued to tick along, with no central bank to manipulate its total supply of coins or to change its mining costs, and also remaining completely immune from government coercion.
The bottom line is that it is only a matter of time before Bitcoin bounces back.
Meanwhile we continue to bring you a summary of the best savings rates, loans and deals from across the DeFi space.
We welcome any feedback, so please just email us at firstname.lastname@example.org if you'd like to get in touch.
Matt & the DeFinda team
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