Elon Musk Issues Warning About the Magnitude of the U.S. Debt, Highlighting the Rise of Bitcoin and Gold

The U.S. is currently in the midst of a highly charged presidential campaign, with major financial players positioning themselves to benefit regardless of who’s elected. The New York Times has analyzed this trend, labeling it “Trade Trump.”

Adding to the prevailing uncertainty, Tesla CEO Elon Musk has predicted a significant public debt crisis in the country. He believes this will lead to higher interest rates, increased inflation, and a rise in bitcoin and gold as safe-haven assets. Investors in these securities seem to have anticipated this prediction, as evidenced by the recent increase in their prices.

“A financial emergency.” Musk recently shared his concerns about the America’s enormous debt on his X account. In early October, he had already warned that the country could be doomed to bankruptcy if Trump isn’t re-elected.

Musk’s remarks responded to a post by economist E.J. Antoni, who shared a graph showing the evolution of U.S. debt. Antoni noted, “Federal debt explodes on 1st day of the new fiscal year, jumping $204 billion to [a] new record of $35.669 trillion, but it gets worse: Treasury also had to draw down its cash balance by $72 billion–that’s over $275 billion in the red for just one day.”

COVID-related debt. The stimulus measures implemented by the Biden administration during the COVID-19 pandemic have significantly increased U.S. debt. These measures contributed to rising inflation, prompting the Federal Reserve to raise interest rates. Recently, the Fed announced plans to cut interest rates, marking the end of that cycle.

During a rally at New York City’s Madison Square Garden alongside former president Donald Trump, Musk also referred to the current debt situation as a financial emergency. He added, “Just the interest payments on the debt are 23% of all federal tax revenue.” In addition, Musk claimed that he could save $2 trillion in the federal budget by leading a new “Department of Government Efficiency.” According to official data from the Congressional Budget Office, interest on the national debt is currently about $870 billion per year.

Bitcoin and gold as safe-haven assets. Economic uncertainty amid a potential recession and rising levels of debt has prompted some investors to seek out safe-haven assets such as bitcoin and gold. As reported by Forbes, this has led to a surge in the demand for these securities. Investing in safe-haven assets can help protect against potential increases in interest rates and inflation.

“As both Republican and Democratic parties do not appropriately address the ever-increasing U.S. debts and deficits during this election, this will be very bullish for bitcoin, especially post the U.S. election,” CK Zheng, chief investment officer at ZX Squared Capital, told crypto news site Cointelegraph.

The response from investors has been swift. Faced with short-term uncertainty, many investors are shifting their investments toward safe-haven assets like gold and inflation hedges like bitcoin. This increased demand has driven the prices of both bitcoin and gold significantly higher.

Bitcoin’s price has soared above $72,000, nearing its all-time high of $73,000, which was recorded in March 2024. Meanwhile, gold continues its relentless rise, consistently setting new valuation records.

Musk and Tesla’s bitcoins. Musk’s interest in highlighting public debt and its impact on cryptocurrency prices isn’t without purpose. Bitcoin has become a strategic asset for Tesla, which owns approximately 10,000 bitcoin, valued at around $800 million. This makes Tesla the fourth largest holder of bitcoins among publicly traded companies in the U.S.

Recently, reports from Arkham Intelligence indicate that Tesla has moved these assets into new portfolios. This has led to speculation about a potential sale aimed at adjusting its balance sheet. Despite this, Tesla still appears to view bitcoin as “digital gold,” serving as a hedge against inflation.

Image | Traxer| Jingming Pan

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