$40 Trillion Dollar Baby
I’m starting with a picture of the front page of this week’s Barron’s Magazine. Their cover story refers to the growing national federal debt, which has been our major concern ever since we began writing The Existential Threat four years ago.
The painful fact is that the supposedly fiscally conservative Republican Party has largely disappeared under the leadership of President Trump. Unfortunately, he has expended almost no energy in any major effort to cut what is now a $2 Trillion annual federal deficit. The Doge attempt to drastically decrease spending did not last very long; and while going after fraud, waste and abuse sounds great, it hasn’t yet made much of a dent in total federal spending.
I think President Trump’s plan all along has been to grow our way out of the federal debt problem. He believes that as long as the economy and national income grow faster than the debt, we can handle a growing debt level, and that ultimately, "Certain levels of inflation will also pay off that debt very rapidly. Very rapidly."
Will anything change now that the Democratic party has overwhelming control over both houses of Congress? We think not. Trump’s fiscal deficits are basically the same that occurred under President Biden, and we think that Democratic priorities will lead to an even bigger federal debt level. From what we have read since Tuesday’s election, we can expect a strong Democratic push for undoing President Trump’s tariffs and reversing his Medicaid cuts. We should also expect a strong effort to expand food stamps and embrace “Medicaid for all”
The obvious question is: How are we going to pay for all the new spending? Not only for Democratic priorities but also for the billions of dollars that will be needed to pay for the changing defense needs for the military? The Star Wars fantasy portrayed in the movies is becoming increasingly real, and the military equipment we have been using is increasingly outdated and expensive. Our weapon programs need to be replaced, and it won’t be cheap!
My gut feeling is that the November political change will lead to policy changes that will force a higher level of spending, and an unchecked growth in the federal debt level. Ultimately, President Trump will be proved right, and our nation will be forced to inflate our debt away. Pricing for real assets will shoot higher, and I think that will include commodities, equities and residential housing. The 3.5% increase in the price of gold that followed Tuesday’s election is probably a harbinger of things to come.
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