Original title:Nothing Stops This Train w/ Lyn Alden | Bitcoin 2025

Original author: Lyn Alden

Original translation: AIMan, Golden Finance

Current status of the U.S. fiscal deficit: Nothing Stops This Train

Over the past few years, I have popularized the word: "Nothing Stops This Train". Of course, the word was originally from the TV series Breaking Bad.

For those who haven't seen the show, it tells the story of a chemistry teacher who was diagnosed with cancer and eventually embarked on the dark path of drug production in order to pay for his treatment and support his family. But of course, the moral trajectory of this story is that even after his cancer has been cured, he can’t stop at what he is doing. By season 5, his colleague told him, "We really have to slow down, we've done it too much." But he said, "No, no one can stop this train."

I have always used this term to describe the current state of the U.S. fiscal deficit. In this rather concise speech, I will dive into what this means, why it matters, and why it is so overwhelming. We are at a Bitcoin conference, but around us and around the world, there is a larger dollar system. Therefore, the mutual influence between the Bitcoin world and the dollar world is crucial to exchange rates, economy, and overall investment.

Decoupling phenomenon 1: Unemployment rate Vs Federal deficit as % of GDP

Now that we start, I will explain these pretty concise slides. Some will be simple, some will be a little more complicated, but I will take you through the really important parts.

This chart shows two lines, one is the unemployment rate and the other is the federal deficit as a percentage of GDP. This image dates back decades. As you can see from the slideshow, there has always been a very good correlation between the two. During the recession, the unemployment rate rose and the federal deficit also rose; during the period of economic improvement, the unemployment rate was low and the federal deficit was low. A brief exception was in the 1960s, and if you could squint your eyes on the picture, it was the Vietnam War, so there was a little exception. But other than that, the two lines almost overlap.

But you'll see on the right side of the chart, I circled it in green, and in the past few years, about 2017, we've seen decoupling. Our unemployment rate is falling, and the unemployment level is low, but the deficit has surged to 6% or 7%. This situation has happened even before and after the epidemic. Obviously, during the pandemic, the situation has become even worse, but we can now say we are in a new world.

I'm not the first to talk about the deficit, but I'm trying to get everyone to focus on what's happening right now and hasn't happened in the past few decades. We are entering a new era. This is the current situation of the deficit.

Decoupling phenomenon 2: Actual interest rate Vs Gold price

But the second main question is, why is this important? Why do we talk about it at a Bitcoin conference? The short answer is because it is crucial to asset prices, especially any scarce asset.

This chart shows that the golden line is the price of gold and the black line is the actual interest rate. Again, we have seen historically that there is a very strong correlation between the two. For those who don't know what the actual interest rate I mean, here is the 10-year Treasury yield minus CPI inflation rate.

The reason why the two charts of gold and real treasury bond interest rates are so valuable is that they are the two most important reserve assets in the world, and they compete with each other in scale. Gold is of course quite scarce, with its supply estimated to grow by 1% to 2% per year, but you have no gains on holding it. If anything, you also need to pay for storing it. And Treasury bonds, you know, the dollar and Treasury bonds, their supply grows much faster, but you can get a profit if you hold them.

During periods when yields are quite high relative to the measured inflation levels, some investors who might have bought gold will be drawn back to the US dollar and Treasury system. But when yields are not high enough relative to inflation, many investors flock to gold. They basically say, "If I don't get any return on holding the Treasury bond, why should I hold a Treasury bond that is much richer than gold?" Historically, this is a very strong correlation: high real interest rates mean (correction chart explanation) low real interest rates mean higher gold prices, and on this chart, the real interest rates are reversed, so the downward line means higher real interest rates.

Again, as you have seen in the past few years, especially since around 2022, gold prices and real interest rates have been completely decoupled. So in this financially-led environment, something new is happening.

Of course, this is also important for us to discuss Bitcoin. If you said 5 years ago that if the interest rate was 4% or 5%, would Bitcoin still hold a packed large conference in Las Vegas? Will it cost more than $100,000 per coin? Most people will say no. In fact, many critics have always said that Bitcoin is just a zero-interest rate phenomenon, and the bubble will disappear once the Fed takes any hawkish measures. But what we've seen in the past few years is that the Fed has taken the most hawkish measures they can, and they have even led to bankruptcy in the process, yet both gold and Bitcoin still soared because something has changed.

Turning point: Federal debt growth continues to be faster than the

private sector

These charts are a little cluttered, but I will guide you to the important part because this is where the inflection point is really shown. The blue lines in these charts are year-on-year growth in private sector debt, including bank loans and corporate bonds, among others. The red line is the growth of federal debt. So you have private markets and public markets. The picture on the left is from 1955 to 1990, and the picture on the right is from 1990 to the present. This is a 70-year history.

If you look to the left, the blue line is the private sector debt growth for most of the time, which is faster than the public sector debt growth in any year. A few exceptions occur during recession, and I marked them in yellow on the chart, which are quite rare. During the recession, the deficit would rise, the bank loans would fall, and then we went through that period. What you see in the chart on the right is that since the 2008 global financial crisis, especially in recent years, we have been in a period where federal debt growth continues to be faster than private sector debt growth. I reiterated it with those little green boxes on the right, even in non-recession times. This situation had happened before the epidemic and was still happening after all the dust on printing money was settled.

This turning point is so important because when we look at the Fed's tools to control credit growth, it is mainly interest rates . If they want to slow the economy, slow credit growth, and try to slow inflation, they will raise interest rates and try to make borrowing less attractive. On the other hand, if they want to speed up, they lower interest rates.

The problem is, decades ago, when federal debt was low and most of the currency creation came from the private sector, whenever they raised interest rates, they could slow credit growth, and they slowed down the private sector faster than they could expand their fiscal deficits. The problem now is that federal debt has accounted for more than 100% of GDP, which has only happened in recent years, and when they raise interest rates, it is ironic that they are increasing the federal deficit faster than they slow down private-sector credit growth. This basically means that they never brake again. The train was nowhere to be stopped because it never had brakes anymore. Or to put it another way, the brakes have been seriously damaged. We seem to have passed through the mirror and are now in a fairyland, and the rules that worked for most of the time now work in reverse.

They have basically no way to slow down total credit growth in the system, which is a new phenomenon.

What is the U.S. fiscal deficit unstoppable

So in the next speech, I will use a few slides to explain why the U.S. fiscal deficit is so overwhelming. Why can't we solve this problem by just a few people gathered together? Why is it so deeply rooted? Why do I say so confidently that no matter what the election results can stop this fiscal train? I say this before the election and after the election, because it really doesn't matter. Nothing can stop it.

1. Interest expenses

On this chart, we have a very simple picture. The blue line is the 10-year Treasury rate, and the red line is the ratio of federal debt to GDP. You know, in the 1980s, the debt levels were very low and the interest rates were very high. We have gone through a journey of 40 or 50 years, with debt levels getting higher and higher, but this is offset by structurally lower interest rates. This means, for example, if your debt doubles but your interest rate is halved, your interest expenses are still manageable.

Therefore, for this whole 40 years, interest expenses are actually quite controllable. But in the end we touched on zero interest rates, and the laws of mathematics played a role again. So now we are in an environment where interest rates no longer decline structurally for the first time in decades, and debt levels are still very, very high, the highest since the 1940s. Therefore, interest expenses have actually become an unprecedentedly important part of federal spending. And there is no easy way to control it. If they cut interest rates super low, then everyone wants to pour into scarce assets. But if they keep interest rates high, they will keep expanding the federal deficit because, like I said, we are now in wonderland. This is a very big component.

2. Population structure and social security fund

Another very large component is social security. This chart shows the Social Security Trust Fund. As you can see, it grew from zero to about $3 trillion on the chart. The reason for this change over time is the population structure. The baby boomers were an extremely large population born in the late 1940s to the 1960s, and the generation after World War II was very large. When they enter the labor market, they pay the social security system, so we see a significant increase in the amount of money invested. Now unfortunately, they don't invest in Social Security well, they basically hold it in U.S. Treasury bonds, which are not the best long-term investments.

According to the Social Security Agency's own data, by about 2035, they will run out of that trust fund. This means in practice that they will spend this $3 trillion in the economy. This is happening as the baby boomers enter retirement age, they are already doing it and will continue to do it. This will continue. If you notice, this reached a peak in the late 2010s, peaked around 2017-2018, and started a very early decline process. That's when the deficit was decoupled from the unemployment rate and federal debt growth began to outperform private-sector credit growth. Many of these coincidences in timing are because around the same time, interest rates stopped falling, and the baby boomers who funded all this growth are now entering withdrawal mode. So that money is being spent on the economy through medical care, travel, housing, basically all aspects of money that people have to spend. This is a background expenditure that will return to the system within the next 10 years.

Sometimes that exact exhaustion date may be premature or postponed a year, but this is mostly actuarial, and is basically inevitable. Importantly, these people will vote. Young people will protest, but they will forget to vote. And the elderly population really will vote. Now, anything that touches this fund expenditure is a political high-voltage line. Both major U.S. political parties have vowed to basically not touch social security during this period. So this is basically a foregone conclusion, even in a highly politicized environment, it is one of the few things that both parties basically agree on.

3. Debt Ponzi scheme

One of my last few slides is to emphasize the Ponzi scam nature of this system. So even aside from the current issues related to population structure and debt levels, basically, the way this system is built—the system I mean the central banking system and the partial reserve banking system established on it, we have operated the entire fiat currency system for more than a century—it relies on sustained growth. It's like a shark that has to keep swimming or it will drown. Ironically, this is a system that must continue to grow.

On this chart, the line at the top is total debt in the U.S. system, including public and private debt, which actually exceeded $100 trillion for the first time. The line at the bottom is the monetary basis. What we see is that throughout the period of this chart—I believe it was from 1966 to 2025—total debt never fell, with one very brief exception, that was in 2008, when total debt in the system fell by about 1%. What they did was to rapidly increase the monetary base, from $1 trillion to about $6 trillion now. They were so intolerant of even slight deleveraging that they allowed the party to continue.

Specifically, at that time, if we did a little math, the total debt in the system in 2008 was about $50 trillion, about half what it is now, and their monetary base was about $1 trillion. So the leverage of this system is 50 to

1. This is the kind of leverage you see in cryptocurrencies’ “Degen” derivatives contracts. The leverage of the entire economy is 50 to 1. Specifically, they hit zero interest rates, so they couldn't continue to support the private sector's debt bubble, so they turned to the federal level. This shows the sensitivity of the system. Over time, we are now more at the stage of public sector debt growth.

I actually looked at data earlier than this chart, dating back about 110 years ago, only four other years total debt has dropped nominally, during the Great Depression. So 1930 to 1934 was the only period of decline on the chart except for 2008. So, of the data over 110 years, only 5 years are their tolerance for the disintegration of this Ponzi scheme. This is the system we are in, and we find ourselves operating the mathematical laws. This is also a huge contrast with Bitcoin.

4. Long-term uninterrupted deficit growth of 7%

So for my last slide, we don't have to focus on the details, but just look at the shapes of these charts, which are for a century. My main point with these charts is that we actually saw this story before. We've experienced something like what we're going through in the United States right now, around the 1940s. The reason debt growth has been so stable in history is that when they end up having something that really challenges it, they turn the whole system in a direction and we are going through the second time.

Basically, you have a private debt bubble accumulation and then you hit zero interest rates, so you can't continue to add to accelerated private debt. Then what happens is that you find your leverage is 50 to 1 and you start to disintegrate. How do you disassemble a leverage of 50 to 1 system? The short answer is, you don't disintegrate. You just print more units of currency, which is how they always deal with it. So what happened is that they turned to federal debt growth, they turned to running huge federal deficits. So even if the debt level in the private sector ends up being flattered for a while, it continues to grow in the public sector. This tends to be more inflationary and more sustained. Because when we get to the point I mentioned earlier, when the Fed raises interest rates to try to slow it all, they expand the federal deficit faster than they slow down the growth of banks.

So basically, we're completely derailed now. Note that nothing I say has to do with the Weimar Republic and has to do with hyperinflation. It's all about long-term, uninterrupted 7% deficit growth. We are not talking about a deficit that accounts for 70% of GDP, we are talking about 7%, but it happens as precisely as a clock every year. What matters is its ruthlessness.

No one can stop U.S. debt vs. Bitcoin

So when we look forward, this is the system where Bitcoin is going to exist. If you summarize the entire speech, all these charts, all these views, there are two main reasons that result in the U.S. fiscal deficit. This train cannot be stopped by anyone.

The first is mathematics. That's the way they built a Ponzi scheme that I've talked about before, and it must continue to grow forever to avoid starting to deleverage in a crazy way. That's the system they built.

The second reason is human nature. None of us wants to pay higher taxes. Those on the receiving end of the deficit will never want to cut the deficit. Few politicians have enough incentives to really cut their deficits during their tenure. Basically, this represents a flexible ledger. This is the ledger that we all use in the United States and around the world. Because this is a flexible ledger, they can always create more units, so this is the error correction mechanism they rely on again and again.

This is in contrast to Bitcoin. You know, Bitcoin is the complete opposite of this system in many ways. It is a mirror of this system. It is not an ever-increasing supply, but an ever-increasing supply that cannot even slow down, Bitcoin is absolutely scarce. Not opaque, but transparent. Bug fixes are not simply able to print more supplies, but bug fixes that happen in Bitcoin are that deleveraging can happen, but you can never shake the supply itself.

So basically, for the next 10 years, no one can stop this train. The United States will run a very large fiscal deficit, no matter what else it happens. Some things can speed it up a lot, some things may slow down a little, but nothing can make a meaningful impact. Therefore, one way to protect yourself from this situation is to have the highest quality scarce assets. Of course, the one we all like is Bitcoin.