• Bets hedging the effects of America's huge debt pile are ramping up, Bank of America said.
• The government is taking out around $1 trillion of debt every 100 days, the bank estimated.
• The staggering pace of borrowing is part of the reason gold and bitcoin nearing all-time highs.

According to Bank of America, there is a discernible uptick in the adoption of strategies aimed at hedging against the potential fallout from America's substantial debt accumulation. The bank's analysis reveals a staggering trend: the United States is accruing debt at an unprecedented rate, with approximately $1 trillion being added to its financial burden every 100 days. This rapid pace of borrowing is seen as a driving force behind the remarkable surge in the values of assets like gold and bitcoin.

Bank of America's strategists paint a concerning picture of America's fiscal landscape, indicating that the nation is amassing debt at an alarming annual rate, amounting to an estimated $3.6 trillion. The situation is further compounded by heightened military expenditure, encompassing both domestic security needs and obligations abroad, which has climbed to 9.3% of GDP over the past four years.

In light of these developments, investors are increasingly turning to trades designed to safeguard against the depreciation of the dollar, with gold and bitcoin emerging as favored options. Gold prices have surged to approximately $2,081 per ounce, marking a significant 6% increase over the past six months. Simultaneously, bitcoin has experienced a notable uptick, reaching $61,000, its highest level since November 2021, and registering an impressive nearly 50% surge in 2024 alone.

“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” Moody's Investor Services said. “Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”

The recent surge in enthusiasm for these alternative assets can be attributed to various factors. Among them are the approval of spot ETFs earlier in the year and anticipation surrounding the forthcoming halving event within the bitcoin ecosystem. Proponents of bitcoin have long extolled the cryptocurrency's virtues as a hedge against the devaluation of the dollar and broader systemic risks within the U.S. financial framework.

However, commentators have sounded a note of caution, highlighting the significant challenges posed by the rapid accumulation of debt. The oversupply of U.S. government bonds, coupled with the escalation of interest rates, threatens to diminish their appeal to investors, potentially complicating the government's ability to secure funding. Estimates from Capital Group suggest that within the next five years, the United States may allocate more resources to servicing debt interest payments than to defense, placing further strain on the national budget.

The mounting national debt has become a focal point for financial markets, particularly against the backdrop of ongoing debates over budgetary policy. Concerns are mounting that failure to reach consensus on fiscal matters could lead to a partial government shutdown in March, an outcome economists warn could have far-reaching and adverse economic consequences for the country.

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