The gold market tells about the fear of the collapse of the world order. And what about Bitcoin?

The US elections are fast approaching, and the candidates, as well as the electorate, are elegantly avoiding talking about the important economic issues. The so-called economic plans presented by the candidates range from destructive populism from the home of Trump, who advocates protective tariffs that will supposedly save the economy, to a sugary romanticization of Haris on direct and indirect subsidies of several tens of thousands of dollars for small businesses.

Meanwhile the gold market is trying to tell us something. As of the time the article went to print, gold rose this year by about 33% against the dollar, the strongest year since 2010. In aggregate, since the 2009 crisis until now, gold has yielded an average annual return of between 8% and 10% against the main currencies – the dollar, the euro and the yen . Bitcoin, for its part, has yielded a return of about 56% so far this year. The Nasdaq and the S&P, by the way, yielded about 24%-25%, respectively.

Gold has always been a financial asset whose investment reflects concerns, and what it tells us about its sharp increases in the past 12 months is a great concern regarding the future of the world order in general and the financial one in particular. You don’t need to be a top commentator to understand that something in the world order is being undermined. A presidential candidate with a real chance of being elected, whose platform centers on the discussion of immigrants eating pets; A murderous dictator who for two and a half years has been conducting a cruel, aimless or futile bloody war against his neighbor who is even poorer than his country, and by the way is destroying his own country as well; A regime of murderous religious priests engaged in wreaking havoc on its strategically-globally important environment, and is not restrained by the international community; Another primitive religious regime that continuously disrupts a major international shipping route, and provocative military maneuvers accompanied by repeated threats by a dictatorship in East Asia, which may turn into a monumental military move, which will bring global economic destruction, and in particular in the tech industry.

All this disorder, silence and logic is reflected in the price of gold. But it is not only geopolitics that moves gold to 37% in the last dozen months. The entire global economic order, the Fax Americana, currently rests on the stability of the fiat system, the dollar and the debt, and it makes alarming creaks.

In the month of August alone, the federal government deficit stood at $380 billion, according to a report by the US Treasury Department, roughly as much as the entire national debt ($389 billion) at the end of 1970, when Nixon turned the gold dollar into a credit dollar. At the end of September, the federal fiscal year ended, and the deficit for the past year, which was 1.8 trillion dollars, puts the total government debt at close to 36 trillion dollars, out of over 100 trillion dollars of general debt of the entire American economy.

Government debt maintenance expenses, including interest, amounted to almost a trillion dollars in the past fiscal year. This cost, according to estimates by the Congressional Budget Office, will climb despite the expected interest rate cuts to about $1.7 trillion within a decade, while the deficit itself is expected to rise to about $3 trillion per year. By the end of the current decade, i.e. 2029, the cumulative deficit is expected to increase by an additional 10 trillion dollars, and by 2034 at least 22 trillion dollars will be added to the government debt. No doubt, the deficit is spiraling. But as an issue in the election campaign, none of the candidates dares to approach and address the problem, not to mention offer solutions to it.

A train on its way to the abyss

The interest rate increases since 2022 have cooled the economy, and with them inflation has almost completely calmed down. In the short term, we should therefore expect continued interest rate cuts, which is good news for the markets and the economy. But when it comes to the longer term, the fiat regime and the debts have become an uncontrollable train hurtling towards the abyss, and for good reason. The entire American economy grows per year at a rate that does not even cover half of the interest on its debts, and the US government’s income from taxes does not even cover the cost of its expenses set by legislation (ie social security: Social Security and Medicare) plus the cost of maintaining the debt (the interest, etc.).

For example, in the next budget year, the federal government’s total tax revenues will amount to about 5 trillion dollars, while the expenses for interest, social security, Medicare, etc. will amount to about 5.1 trillion dollars. Simply put, the government has a $100 billion deficit even before any promises to cut taxes, without any revenue reduction due to an economic slowdown if any and before a cent is spent on defense, education, foreign aid, or law enforcement.

The candidates do not take this into account, and quietly but consistently the funds are running out from the Medicare and National Insurance funds. For those who bother to look at the numbers, this is clear. The US government’s budget problem, and in any case the swelling deficit and debt, will not be able to be solved without a painful root treatment of Social Security and Medicare spending.

But even discussing such treatment is political suicide. In 2005, President George W. Bush proposed reforming Social Security, and the issue was sharply dropped from the agenda by lawmakers from both parties. Since then no one dares to touch or approach the subject anymore. The Americans are admittedly concerned about the future of these programs. A Gallup poll found that 73% of Americans under the age of 65 were concerned or very concerned about Medicare, and 80% were similarly concerned about Social Security.

At the same time they are also worried about the debt. In a survey conducted in September of this year, 91% of the respondents wanted to hear from the presidential candidates how they think about dealing with the growing debt, which they are very bothered by (51%) or really bothered by (26%). Troubled are troubled, but few are willing to consider some kind of solution.

It is clear to every rabbi that the government deficits can only shrink in a combination of three ways: cuts in the limits of the National Insurance and Medicare insurance coverage; raising taxes, in particular the employee taxes intended for these programs; Or a dramatic and extremely significant increase in the output of the American economy. But most Americans are not ready for any change in the status quo. According to a survey conducted by the AP organization, approximately 79% of respondents opposed a reduction in National Insurance receipts, and 67% opposed an increase in the monthly payments paid by the insured.

Similar numbers also opposed delaying the starting date of the aforementioned programs to age 70 instead of 65 or 67 today. Although 58% agreed to raising taxes on those earning over $400,000, as proposed by President Biden, to finance Medicare, but unsurprisingly the numbers do not add up The analysis of the data from the American income tax shows that even if the tax on all incomes above 500 thousand dollars increases to about 80% (including state income tax), the tax increase will still not be enough to cover about 40% of the deficit, and a gap of about 1.3 trillion deficit for a year will remain in his favor.

There is no economy without immigrants

A solution, if any, to the problem of the built-in deficit, is found in an actual increase in output. But such growth, if we put aside the great hopes of the AI ​​revolution, clearly involves increasing the number of young workers, especially in the most profitable industries. Of course, any such increase will absolutely depend on a significant increase in immigration. Already today, America has no economy without the immigrants, legal and illegal, and things will worsen in the future when the current demographic trends will intensify. According to the estimates of the federal department that collects information in the field, without any immigration, the US population will decrease, in view of the ongoing decline in births, every year from now until the end of the century, so that by the year 2100 the number of Americans will decrease by a third, and of the remainder, approximately 35.6% of the population will be elderly.

Already today, in the promising and profitable industries, immigrants are the cornerstone of the economy’s existence. Of the approximately two million academic degrees awarded to US residents in the 2022 academic year, less than 20% were in STEM science subjects, and when it comes to advanced degrees the number drops to 10%. In the absence of enough American graduates, the entire tech industry relies on immigrants that recently arrived, and mainly from India and China.

In Silicon Valley, for example, over 70% of programmers are not born in the United States, and in other areas, such as Seattle and New York, the number is about 50%. In the entire science industry, immigrants make up more than a quarter of the workers, a number that has doubled since 2000, compared to an increase of 44.5 % of US-born workers. Of the immigrant workers in these industries, Indians made up about 30%, followed by people born in China, Mexico and Vietnam. 86.5% of these immigrant workers had advanced degrees, compared to only 21.8% of the US-born.

Immigrants are not only an important part of the science, tech and knowledge industries today; According to a 2023 Harvard University study, immigrants or the children of immigrants make up about 31% of the US student population, an increase of 58% from 2000 to 2018.

But immigrants are not only a key to the science and tech industries; They are also a critical foundation for the economy in general. The agriculture, food processing, construction, and renovation industries are fully dependent on legal immigrants and especially those who are not. Simply put, without immigrants the US economy will shrink dramatically, and with it the sources to cover social spending for adults will shrink dramatically.

But a large part of America is dominated by a strong anti-immigrant sentiment, and ironically, this happens mostly in the groups that most need the help of these immigrants for their future maintenance. What the effect of such a sentiment will be on the willingness of high-quality immigrants to come to America in the future is difficult to estimate, but there is no doubt that a country with a shrinking economy, and an aging population that does not look forward to immigrants, will have great difficulty meeting its social obligations to its elderly and stopping the debt avalanche.

Bitcoin was created for this purpose

The era of fiat depends on containment, without a technological miracle that will result in a significant increase in output, and without an increase in the number of productive workers, the end of this debt economy will collapse on itself. But the political system, following the electorate, deals with vain ideas such as protective tariffs, which will only increase the structural problems.

All of this is told and reflected by the price of gold, but that is exactly what Bitcoin was created for. Or in the words of a document published last month by Blackrock, the largest financial manager in the world, which manages assets to the extent of approximately 10 trillion dollars: “While Bitcoin demonstrated sharp fluctuations similar to high-risk assets, in the long term the basic features and motivations behind it are much different, and in many cases opposite, than those of most classical investment assets. As the global investor community faces rising geopolitical tensions, with concerns about rising US debt and deficits, and with increasing political instability spreading around the world, Bitcoin is increasingly seen as a unique asset that is a hedge against some of the financial, monetary and geo risks -these political issues, which may affect other parts of the investors’ portfolio.”

We have been sounding such a warning here at Globes since 2017; In the last year, this recognition is also spreading to the biggest players in the financial industry in America, and it is clearly visible in the price of these assets.