Getting It Wrong

More than seven years ago I advanced this assertion in a blog post.

Republican control of government has now produced a ten-year outlook likely to push publicly held national debt close to $30 trillion by 2028. Debt as a percentage of the economy would be the highest since 1946 and perhaps the highest ever recorded - depending on how much of the tax bill is extended. 

Holy Smokes!  I was clearly off the mark.  Biggly!

Last time I looked the federal debt is currently north of $36.2 trillion.

Makes you wonder what it will amount to by the time 2028 rolls-around..... 

Faith

 

The dollar is off to its worst start since 1973.  And it has continued its slide even though President Trump has backed down from some of his tariff threats and the stock market has bounced back from earlier losses.

 

What gives? 

It can be a mixed bag.  A weakening dollar, while potentially beneficial for some sectors, generally leads to increased import costs, higher inflation, and potentially higher interest rates.  This can impact consumers through increased prices on imported goods and potentially higher borrowing costs.  However, it can also make American goods more attractive to foreign buyers, boosting exports and potentially stimulating economic growth.

On the negative side of the ledger a weak dollar can lead to increased import costs.  As the US dollar buys less foreign currency it costs more to import goods from other countries.  Consequently this can lead to higher consumer prices in a wide range of imported products potentially fueling inflation.  

If a weaker dollar does lead to higher inflation the Federal Reserve might raise interest rates in an attempt to curb rising prices.  This would make borrowing more expensive for consumers and business impacting everything from mortgages, car and small business loans. 

Is overseas travel on your agenda?  A weaker dollar means your money doesn't stretch as far as it used to and travel becomes costlier. 

On the positive side of the ledger a weaker dollar makes exported goods and services cheaper for foreign buyers.  Potentially this can increase export demand and boost the competitive edge for American businesses.  If there is an increased demand for US exports the can lead to higher production, job creation and overall economic growth.

And just like foreign travel is costlier for Americans the opposite is true for foreign tourists.  A weaker dollar means that overseas currencies are stronger relative to the dollar making travel here more affordable.

Bottom line?  US debt already exceeds $36 trillion. The passage of the Big Beautiful Bill, at a minimum, is going to increase Federal debt by $3.3 trillion; raising the debt-to-GDP (gross domestic product) ratio from 124 percent today, raising concerns about long-term debt sustainability.  The mounting annual deficits would rise to 6.9 percent of GDP from about 6.4 percent in 2024.  Confidence in the US continues to erode.

Owing to our dominance in trade and global finance the dollar has been the world's reserve currency.  More than half of the world's exports are denominated in dollars, 60 percent of all bank deposits are denominated in dollars and 70 percent of all international bonds are priced in US currency.  And 57 percent of the world's currency reserves - assets held by central banks - are held in dollars.  All of this is supported by confidence in the US economy, our financial markets and our legal system.

President Trump is changing all of this; further spreading uncertainty. 

Presently, foreigners own $19 trillion in US equities, $7 trillion in Treasuries and $5 trillion miscellaneous US credit; and investors are beginning to realize they might be over-exposed to US assets and their trust is beginning to erode. 

If global investors continue to trim their positions the dollar's value could come under sustained pressure as the US becomes a less attractive place to invest these days.

Trust is like the air we breathe – when it’s present, nobody really notices; when it’s absent, everybody notices. 

- Warren Buffett

 

 

 

Ticking Time Bomb

The President's Big Beautiful Bill could possibly be beautiful and is certainly is big; but not simultaneously.  Setting a record for an all time high in deficit spending is the big part and that is hardly beautiful.  It is an economic time bomb that could eventually bring down our rather decent credit rating and our children's economic prospects along with it.

That is hardly a beautiful prospect.

This is spending on the scale of a wartime economy.  Last time I looked, we're not at war; a real one anyway.

There is momentum in the Senate to stop the process, at least "until the president gets serious about spending reduction and reducing the deficit," said Sen. Ron Johnson (R-WI). Johnson's concerns come as a number of GOP lawmakers, including Sens. Rand Paul (R-KY) and Josh Hawley (R-MO), have indicated they will not back the bill in its current form.  

The administration and the house are whistling past the graveyard; the Senate has an opportunity to take a whack at the House Pinata and perhaps bring some sanity to this debauchery of spending.  

I hate to sound like a broken record and say I told you so; but the solution to our budget deficit is the 800 pound gorilla sitting with us in the room.  Namely, Social Security, Medicare and Medicaid.  They need to be reformed.

Of course, that is a heavy lift and hard work.  The administration seems loathe to roll-up their sleeves and work hard.  And if Trump's party loses some or all of its power in the mid-terms the opportunity to take it on later will have passed.

Meanwhile we have reality television cage-match politics.  We are living in interesting times. 

Spending Plan

click on the chart to enlarge

 

 

Cast your gaze to the chart.

The White House is calling this a budget; but since it only addresses some domestic discretionary portions of federal spending; it's not a real budget.

To qualify as a budget it has to also include defense, interest on the debt, Social Security, Medicare and Medicaid.

It is a spending proposal.

Where Does the Money Go?

Frequently the discussion around how the government spends our money gets bogged-down in the jargon of budget nerds with terminology like discretionary and mandatory spending.

Thee good people over at Axios along with the help of centrist think tank Third Way distilled thousands of lines of federal spending and broke it down into a chart using plain language. 

In the Third Way analysis 31 cents of each dollar the government spends consists of checks to Americans - primarily Social Security.  15 cents went to help people purchase health insurance, 12 cents to medical expenses, another 13 cents went to cover interest on the national debt,  3 cents goes to wages for military and federal law enforcement while everything else the federal government does cost 26 cents. 

Once you wrap your mind around the fact that 60 cents of every dollar is spent on health care or direct payments it makes the spending picture clearer.

The Big Beautiful Bill

The Big Beautiful Bill is back.

In the run-up to the election candidate Trump and Congressional Republicans made multiple promises to cut multiple taxes for multiple constituencies.  They cannot deliver on all of it as a consequence of a $4.5 trillion limit on the amount of money the federal budget can devote over the next decade to tax cuts. So, if you're looking forward to tax-free tips, tax-free Social Security, tax-free overtime pay and state and local tax (SALT) deductions something is gonna give.

First-off, if the GOP-controlled Congress wants to simply reauthorize the last round of tax cuts implemented during Trump 1.0 that will account for almost all of the $4.5 trillion cap leaving roughly $300 billion for everything else. 

Secondly, the GOP plan is contingent-upon an additional $2 trillion in spending cuts.  Anything less than that and the tax cuts are jeopardized.

Source: Committee for a Responsible Federal Budget | Not all proposed tax cuts are shown. | By The New York Times

 The non-partisan Committee for a Responsible Government has tallied these estimates for the next decade :

• At least $100 billion not to tax tips 
  

• At least $250 billion not to tax overtime

• At least $550 billion to lower taxes on Social Security benefits

• At least $200 billion to increase the deduction for state and local taxes

The challenge is that the sum total of these promises blows-up the budget.  Sure, Congress could end the subsidy for electric vehicles and scratch together something from that.  The trouble is that's all it is.  Scratch.  Chump change in a voluminous budget.  

Senate Republicans have floated the notion that if Congress simply reauthorize the Trump 1.0 tax cuts it doesn't cost anything. Since the old Trump tax cuts are currently in effect then maintaining the status quo costs nothing.  It is free.  Or at least that is the thinking.  If you consider that really thinking.  Just between you and me I know this brilliant thinking will blow-up the deficit and balloon the debt that any rational economist would tell you is already too large.  But I digress. 

Meanwhile, the debt ceiling looms large.  The tax cuts expire at the end of the year.  Hard deadlines make for hard work.  Time will tell.

Theater At The DOGE

I asked ChatGPT: 

How much budget savings so far from Musk's Department of Government Efficiency?

As of March 2, 2025, the Department of Government Efficiency (DOGE), let by Elon Musk, reported the cancellation of 128 contracts recently, resulting in approximately $60 million in savings.  Since Its inception, DOGE reports terminating over 3,000 wasteful contracts.

However, analyses by external organizations have raised questions about these reported savings.  An NPR investigation found discrepancies in DOGE's claimed savings, suggesting potential overstatements. 

Additionally, data from DOGE's "Wall of Receipts" indicates that nearly 40% of the cancelled contracts are expected to yield no actual savings. 

In specific instances, DOGE identified inefficiencies in software licensing.  For example, the General Services Administration (GSA) reportedly held 37,000 WinZip licenses for 13,000 employees, leading to a claimed $9.6 million in savings after addressing the surplus.

While DOGE reports significant contract cancellations and some specific savings, external evaluations suggest that the actual budgetary impact may be less substantial than claimed.

Despite these efforts, the reported savings represent a fraction of DOGE's ambitious goal to cut $2 trillion in federal spending by July 4, 2026. 

The notion that Elon Musk and his government efficiency apparatchiks can bring down the debt is a tall order.  To be clear, I take no issue with rooting-out waste fraud and abuse; just give the chainsaw schtick and lame theatrics a rest.  

At this particular moment in time our outstanding debt stands at $36 trillion (give or take).  Closing a handful of government agencies and laying-off government workers makes for great theater but it isn't gonna get the job done.  The savings are much, much too small to achieve the stated goal. Anybody who actually believes nibbling around the edges like this will fix the real problem is engaging in what I call magical wishful thinking.

You see, just like a household budget that has gotten out of control, fixing this problem is going to require hard work and making difficult choices.  

You're probably thinking - Like what?

Like raising taxes, cutting defense spending or reforming Social Security and Medicare.  Or all of the foregoing.  These are unpopular choices for good reason.  Nobody wants to do them.  They're like going to the theater to watch a crappy production.  Nobody wants to do that.  The people demand good theater.  Bread and circuses if you will.  I might be wrong, but I happen to wonder if the current collection of clowns places a higher priority on theater and spectacle than hard work.

So, are we going to continue to be witness to the slow roll reality TV performance or get serious about fixing the real problem for the next couple of generations.

Anyone care to make a friendly wager?

The Big Beautiful Bill

Sure, I know that some of you reading this have been dazzled by Elon Musk and The DOGE.  I hate to break it to you but that's just theater.  Entertainment to distract the masses from serious budget stuff.  

Winter is going to turn to spring and spring will turn to summer.  And American families are going to turn to vacation travel.  And when they visit a national park, or battlefield or monument and nobody's picking-up the trash, cleaning the restrooms or a campground is closed the people will be grumpy.  And they'll look at that twitchy billionaire from South Afrika and say:  WTF.  

 

I'll make it simple for you.

Here you go folks.

The House budget.  

A Big Beautiful Bill.

Almost $3 trillion of Big Beautiful Red Ink in that mamajama.

 

 

 

Impoundment

Our Founding Fathers crafted our government to be small.  Not so small and ineffectual as the one under the Articles of Confederation (which the Constitution replaced) even so, limited.  In the century and a half leading up to just before the Great Depression, federal spending consistently hovered-around 3% of GDP; evidence of a constrained government.  With the passage of time things changed.

In an effort to limit patronage and corruption the civil service system was created in 1883.  With the exception of a wartime economy government continued to remain limited in both size and power.  Nevertheless, with the best of intentions, a small bureaucracy was born.

The arrival of Roosevelt's New Deal in 1933 gave rise to a vast collection of regulatory agencies, government-supported recovery programs and creation of various federal safety nets.  Considering the magnitude of a decade-long depression most of this was welcomed by a beleaguered citizenry. And the administrative state grew.

Fast forward to nowadays.  Several generations had come and gone since WWII and all the while government had grown larger.  Allow me to introduce you to the power of impoundment. 

In the simplest of terms an impoundment is any action – or inaction – by an officer or employee of the federal government that precludes federal funds from being obligated or spent, either temporarily or permanently.  Presidents dating back to Jefferson had periodically wielded the impoundment power.  

Naturally, Congress holds the legislative power of the purse.  It is the prerogative of Congress to hand the president a purse full of money; but not the capacity to compel the president to spend the entirety of the contents of the purse.  Presidents retained executive discretion in that regard. 
In 1974, Congress passed a law with the intent to limit the president's power of impoundment. 

The Impoundment Control Act of 1974 created procedural mechanisms by which the Congress considers and reviews executive branch withholdings of budget authority.  It requires the President to report promptly to the Congress all withholdings of appropriations and to abide by the outcome of the congressional impoundment review process. 

Although the basic framework of the act is sound, it set the table for a clash between the three branches of government - Executive, Legislative and Judicial. The Founding Fathers May have been prescient.

Enter the Unitary Executive Theory; a Constitutional law theory according to which the President of the United States has sole authority over the executive branch. It is an expansive interpretation of presidential power that aims to centralize greater control over the government in the White House.

The Executive Branch of the government exists because of Article II of the Constitution, which vests executive authority with the president.  Yeah, in a very short period of less than a month our new president has cut spending authorized by Congress.  Some are sore about this sudden turnabout.  Consider this; if a president is to have reign over the executive branch, has he the authority to eliminate the positions needed to spend that money?  Or can Congress or unelected judges force him to spend it by essentially commandeering executive power?

Therein lies the rub.

This is not rocket science.  If Congress passed a law last year saying money should be spent this year, then it might come as a surprise that a new president can just cancel that spending.  It is already impacting local government where I live.  The seeming abruptness of this is we haven’t had a president in fifty-plus years willing to fully test the limits of their constitutional authority, including impoundment. 

It's still very early in the game and the president has flooded the zone with enough sound and fury as to make one's head spin.

We'll have to wait a bit to see how this plays-out.  Only time will tell.

You're welcome......

DOGE Update

In the aftermath of the inauguration of Donald Trump we've witnessed the exiling of DOGE Bro Vivek Ramaswamy and Elon Musk's waffling on his promise of $2 trillion of government spending cuts.   

I have two DOGE updates:  Privacy and Theatrics.

Last week we learned that a federal judge halted access to the US Treasury's payment systems by Elon Musk's team of DOGE apparatchiks. The order came in response to a lawsuit filed by 19 state attorneys general accusing the president of failing to faithfully execute the nation's laws when he granted DOGE unfettered access to the federal payments system.

The White House had previously defended the DOGE's access as READ-ONLY, yet in the ruling the judge specifically invoked the Watergate Era Privacy Act of 1974, which states:  no agency shall disclose any record which is contained in a system of records by any means of communication to any person or to another agency.  

Let me begin by making abundantly clear I'm all about rooting out waste, fraud and abuse.  I embrace audits that adhere to Generally Accepted Accounting Principles. I believe in accountability. I place a high value on transparency. I hold close Reagan's admonition to Trust, But Verify.  Privacy is at the top of my list; which happens to be why I applaud the court ruling.

I would not voluntarily release my tax returns, charitable contributions, investment account and banking information, social security records, medicare details (including health records) or any other personal identifiers or privileged information to anyone without my prior written consent and assurance this information would be safeguarded.  

Rooting out fraud while simultaneously erecting appropriate firewalls to protect the integrity of a citizen's privileged personalty are not mutually exclusive. In my previous life my employer guarded this same information on behalf of their clients as if it were the Crown Jewels.  A security breach was always on the short list of of existential risks facing any financial services firm.  

To-wit, a couple of my MAGA pals think I'm nuts.  I'm overreacting.  Between you and me, for a couple of guys who howl at every opportunity about their impeccable conservative credentials; privacy ranks close to the bottom of priorities.

Go figure.  

Considering that Mr. Musk hasn't passed senate review or approval, has not received a security clearance, issued written ethics guidelines, or defined for anybody what he and his team intend to do with this data; naturally many of us have concerns.  Will they safeguard your identity?  Share it with whomever they please?  Retain it indefinitely?  Sell it?  Blackmail people with it? 

The question to you, dear readers, is the defense of personal information unreasonable?  

Would YOU voluntarily release the foregoing to Elon Musk without reservation?

Ponder that.

Meanwhile, DOGE has dismantled a Federal agency - USAID.  I've substituted a WIKI web link as the official .Gov website has been disappeared.  Meanwhile the name of the agency has been stricken from the building.  

Image - NBC

To be clear, the loss of USAID has no direct impact on my life so I don't have a dog in this fight.  Although I wonder if this signifies that we've thrown-in the towel on soft-power influence in response to stuff like Communist Red China's Belt and Road initiative, or North Korean and Soviet designs on African natural resources. Time will tell.

Meanwhile, I want to highlight the messaging power of what is known in political vernacular as a Play to the Base*  

Both Democrats and Republicans engage in these dramatic flourishes; and in this instance Elon Musk is championed for slaying the Great White Whale of foreign aid corruption.  Apologies for the Herman Melville metaphor but Trump is a master of this sort of theater.  

Consider this:

As crazy as it sounds opinion polling suggests that a plurality of Americans believe anywhere from 25 to 31 percent of the entire federal budget is foreign aid.  Wasteful fraud and abuse.  Every last damn dollar going to ungrateful heathens.  Naturally, that belief is fallacious because it is opinion and not fact.  US foreign aid (economic, nutrition, health and military) has historically hovered around 1% of the entire US budget; with USAID a small part of that total.  I've blogged about this before.

2023 aid managed by USAID totaled about $40 billion. You and I would likely agree that this sounds like a king's ransom to an average American; correct?  Yet in the grand scheme of our federal budget it is pocket change in the government's couch cushions.

If you unpack the numbers in the context of the entirety of the federal budget the savings amounts to 2% of Elon Musk's $2 trillion savings boast. 

Considering the context of erasing an entire agency; and assuming Washington never feeds another hungry Sub-Saharan child, vaccinates any heathens suffering an epidemic or offers any similar disaster aid these savings become basically permanent.  I take no issue that they are savings.  They are permanently exceedingly small.  

Even so, in the eyes of Trump supporters Musk is a Giant Killer.  

The melodrama of sweeping furloughs of slothful and ungrateful government workers, the erasure of an entire agency along with the trope of chiseling the name from the facade of the empty building is as close as you can get to modern-day angry Jesus giving the money changers the heave-ho from the temple.  

The theatrics are priceless.

So, let's agree this scalp in Musk's belt in only the first three weeks of the administration is yeoman's work. Or is it like the Battle of the Greasy Grass?  Spoiler Alert: The plains Indians took many scalps and still lost the war.

Ask yourself this:

Is the DOGE willing to hunt and scalp the prize 800 pound gorilla?

Or the administration to settle on collecting some small scalps for Reality TV* and forfeit the war?

Only time will tell.

Pro Tip Alert!  Be sure to stock-up on popcorn and adult beverages.  Both a Budget Reconciliation and the Debt Ceiling are in the on-deck circle.  I'm told it's gonna be easy peasy as Trump controls both Houses of Congress.