How far can indebted Americans continue to buy crypto?

Despite many seemingly positive reports about retail spending or the unemployment rate in the United States, the country continues to struggle with a host of structural challenges, including a historic $34 trillion in public debt and $1.13 trillion in consumer credit. Card debt. Alexander Hamilton famously said, “If the national debt is not excessive, it will be a national blessing,” but current debt levels raise questions about the sustainability and long-term economic impact of fiscal policies.

The threat of public debt was an issue debated by conservatives and liberals. However, recent comments by prominent figures in the banking sector highlight the seriousness of the situation. JPMorgan Chase CEO Jamie Dimon warns of global market “rebellion,” Bank of America CEO Brian Moynihan calls for decisive action, “The Black Swan” author Nassim Taleb predicts a “death spiral” and former House Speaker Paul Ryan's description of the debt crisis as “the most predictable crisis we've ever faced” underscores the need to reassess the US's fiscal trajectory.

57 percent of Americans surveyed by the Pew Research Center say the public's growing concern over the government's debt indicates that society's priorities have shifted to fiscal responsibility. This concern takes on greater significance given its real-world implications, particularly on housing affordability and the broader economic landscape. The dangerous situation of the housing market, exacerbated by rising interest rates, shows the link between fiscal policy and individual economic expectations: as public debt grows, so do interest rates.

The public's growing concern over the government's debt — with 57% of Americans recommending it be reduced by the Pew Research Center — reflects a shift in society's priorities for fiscal responsibility. This concern takes on greater significance given its real-world implications, particularly on housing affordability and the broader economic landscape. The dangerous situation of the housing market, exacerbated by rising interest rates, shows the link between fiscal policy and individual economic expectations: as public debt grows, so do interest rates.

Credit card debt rose 14.5% in the fourth quarter of 2023, according to CNBC.

Auto debt rose to $1.61 trillion, up $12 billion quarterly and $55 billion annually, or 3.5%, according to CNBC.

— unusual_whales (@unusual_whales) February 13, 2024

The US dollar's global status as a “comfort commodity” plays a key role in allowing the country to manage its high debt immediately without negative consequences. However, a recent working paper released by the National Bureau of Economic Research found that the loss of the dollar could increase the debt burden by as much as 30 percent. This vision emphasizes the importance of critically evaluating the country's fiscal direction.

The challenge in the nation – and many other developed countries – shows what is happening to many consumers. Americans are increasingly adding to their credit cards without paying off the balance to cover routine expenses. For example, a new report released by the New York Federal Reserve showed that total credit card debt rose by $50 billion (or 4.6%) from the previous quarter to $1.13 trillion, the highest level ever recorded by the Fed. Data from 2003 and the ninth consecutive annual increase.

The New York Fed report also shows an increase in borrowers struggling with credit card, student and auto loan payments. For example, 3.1 percent of outstanding debt was at some level of delinquency in December — an increase of 3 percent from the previous quarter, though down from the average rate of 4.7 percent seen before the start of the Covid-19 pandemic.

“Credit card and auto loan delinquencies are still rising above pre-pandemic levels,” said Wilbert Van der Klaue, an economic research consultant at the New York Fed. “This shows an increase in financial stress, especially among young people and low-income families.”

An important strategy for retail investors in times of uncertainty is diversification. But how to differentiate matters. Investing in the S&P 500 is great, but if you have all your savings locked up in the S&P 500 and it crashes, you're in trouble. While it's true, even if there's a flood next year, the S&P 500 will rebound, but you'll still have to weather the storm.

Another strategy is to have some exposure to crypto. Many people focus on Bitcoin (BTC), Ethereum (ETH) and other digital currencies. However, at least as important – if not more – to create long-term value in the digital asset market is the hash rate, which shows how much activity there is. It's happening on the blockchain. For example, Bitcoin has seen a continuous increase in its hash rate alongside its price increase.

The coming year is critical with significant macroeconomic risks for the country and the consumer. Although some economic reports are positive, we need to pay attention to fundamentals and whether the data reflects temporary and permanent shocks. The challenge for policymakers is to design fiscal policies that promote sustainable growth and productivity while avoiding situations where short-term fiscal needs increase long-term economic liabilities. But the current path reflects the problem of the borrower being stuck in a cycle of debt where the interest rate exceeds their monthly income.

Let's make 2024 a better year of change!

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.