'True' US Debt Is $175 Trillion: Former Coinbase CTO On 'Unpayable' Crisis

Entrepreneur and investor Balaji Srinivasan — the former CTO of Coinbase Global Inc COIN — recently offered several data points that underline the severity of the current debt situation in the U.S.

The U.S. national debt load isn’t $35 trillion, he says in a blog post. It’s $175.3 trillion.

“That's actually the true debt of the USA, when you take all the entitlements into account, like Social Security and Medicare. And that number is itself rapidly increasing,” Srinivasan said, citing numbers from a U.S. Treasury report published in February.

What Happened: The Fed made more emergency loans in 2023 than it did during both the COVID-19 pandemic and the 2008 financial crisis, as per Federal Reserve Bank of St. Louis data. The Fed takes emergency loans when it needs to provide liquidity to banks and other financial institutions, which went "on life support" from the most recent interest rate hike cycle.

According to an analysis by FXStreet, debt acquisition levels by the U.S. government in 2023 reached pandemic levels, but at higher rates and without a crisis to justify them.

This has led interest payments on debt to be the U.S. government's second-largest expense after national defense. By May, interest payments by the U.S. were $2 million per minute.

U.S. Dollar Erosion: Several of the world's largest economies have opted to forgo the U.S. dollar as a store-of-value and exchange currency, replacing it with gold and other world currencies.

China has been reducing its positions on U.S. Treasury debt on a steady basis since 2016, according to Treasury data. Along with Russia and India, China has been building gold reserves to replace the U.S. dollar, writes Srinivasan.

Earlier this year, China also replaced the U.S. dollar for its own Yuan as the main currency used in cross-border foreign exchange deals.

Is The Debt Manageable?

To cover those costs of entitlement programs in the future, the government will need $175 trillion, according to the Treasury's financial report from February of this year.

That figure falls in line with one shared last year by billionaire investor Stanley Druckenmiller in a speech at the USC Marshall Center for Investment Studies.

Covering those expenses can only be done by "increased borrowing, higher taxes, reduced program spending, or some combination," said the Treasury's report.

In Srinivasan's words, the "debt is unpayable."

Government officials disagree and insist current debt levels are manageable. Fed Chair Jerome Powell, for example, is more concerned with the rate of lending than the level of debt.

"The level of debt we have is not unsustainable, but the path that we're on is unsustainable," Powell stated.

Treasury Secretary Janet Yellen shared similar remarks in June. “If the debt is stabilized relative to the size of the economy, we’re in a reasonable place,” she said.

While running for reelection, President Joe Biden proposed a 2025 budget that would reduce the fiscal deficit by $3 trillion, Yellen said. His plan included raising the corporate tax rate to 28% and ensuring that billion-dollar companies (i.e., big pharma) pay at least 21% of their income in taxes, building on the Inflation Reduction Act’s (IRA) corporate minimum tax.

Vice President Kamala Harris, the Democratic candidate for the 2024 presidential election, is expected to release her economic plan on Friday, Aug. 16.

Republican nominee and former President Donald Trump proposed tax cuts for the wealthy — estimated to add $4 trillion in debt over the next decade. He also proposed cutting entitlements.

Although borrowing has been high in recent decades, as compared to earlier times in U.S. history, the debt to GDP ratio is currently lower than it was in 2020 — the peak of the pandemic. This ratio is used to gain perspective on the size of national debt as it compares to the size of the economy.

In the second quarter of 2020, total public debt was 132% of the total U.S. economy. In the first quarter of this year, it was 122%, according to the most recent data from the Federal Reserve Bank of St. Louis.

Yet as U.S. officials show comfort with current debt levels, others have been more critical.

Earlier this year, JPMorgan Chase & Co JPM CEO Jamie Dimon warned that a "hockey stick" pattern in the debt to GDP ratio could lead to a "rebellion" against the U.S. dollar from other world nations.

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