Renowned entrepreneur and angel investor Balajis Srinivasan recently burned a million dollars to make a point about the state of the economy. In a detailed post, Balajis explains his reasoning behind this eye-catching move and warns about the potential for a fiat crisis that could be worse than the 2008 global financial crisis.
The Million Dollar Signal
Balajis settled a million-dollar bet ahead of time and donated even more than he had committed ($1.5M vs. $1M) to various organizations. This seemingly irrational act served as a provably costly signal to alert the public about an impending crisis in the economy that the government isn't discussing.
The Trillions and a Global Fiat Crisis
Balajis compares the current economic situation to the 2008 financial crisis, which saw the printing of trillions by the Federal Reserve. He points out that, on April 13, 2023, the Federal Reserve intervened in a massive bank failure, similar to the events of 2008. The concern is that the world may soon realize it's in the midst of a global fiat crisis, prompting a race to the exits before the printing of trillions begins.
The Fiat Crisis: Worse than 2008
The potential meltdown could be more severe than the 2008 crisis, with multiple sectors failing simultaneously, including banking, debt ceiling, municipal budget, bond, commercial real estate, and numerous other crises. Balajis fears that the Fed's response will be to print trillions to stimulate the economy and bail out the too-big-to-fail industries, exacerbating the problem.
Banana Republic Banking
Balajis criticizes the current approach of hiking interest rates while simultaneously printing trillions to bail out banks. He suggests that this approach only benefits the banks and the political elite, leaving the general public to suffer from high rates and high inflation without access to the money printer.
How and When Will the US Default?
The critical question is whether the US will default on its debt and how and when it does so. Balajis posits that the US will likely default through monetizing the debt or debasing the currency. He estimates a 10% chance of defaulting in months, a 70% chance in years, a 19% chance in decades, and a 1% chance of making it to centuries.
Preparing for the Crisis
Despite his alarming predictions, Balajis remains optimistic about individual Americans, the country at the state and local levels, and global technological progress. He stresses that it's essential to be prepared for a potential crisis rather than succumbing to passivity or panic.