The Uncertain Economy
- Bob O'Brien
- Mar 26
- 4 min read
I’ve heard a lot of complaining from my liberal friends and relatives, that Trump is ruining the economy, and causing all sorts of problems with the uncertainty surrounding tariffs. They also complain that DOGE is running “out of control,” and that it is eliminating programs that help so many poor people. While I have empathy for the needy, what really worries me is one thing that is certainly a big problem - the US budget gap hit a record in first five months of this fiscal year, which started in October 2024, at $1.1Trillion. This deficit is 17% larger than last year, after adjusting for differences in the calendar. Revenues came in at $1.89 trillion, up an adjusted 2% on 2024, while outlays totaled $3.04 trillion, up 7%.
With a total Federal debt of $36.6 Trillion and growing by $2 Trillion each year, it should be obvious to everybody that federal spending is out of control, and that it cannot continue on this trajectory. I would have thought that most Americans would be cheering on Elon Musk for his much-needed effort to drastically reduce federal spending. He’s one of the most brilliant men in America, who already has created the environmentally friendly Telsa, created Space X, which rescued American astronauts stranded in space, and created Starlink, which has helped the Ukrainian army fend off (so far) the Russian invasion. What better person to head DOGE and lead the charge to reduce waste, fraud and abuse in federal spending!
According to the DOGE website, in only two months of existence (as of March 19), it has saved an estimated $115 Billion. That’s impressive. The federal government has become so big and so unwieldly, that even experts have trouble navigating the huge number of contracts, awards, grants and loans. Without Musk’s technological prowess, it could take years to identify all the waste, fraud and ridiculous spending initiatives. Now, it is merely taking weeks and a few months.
However, the more successful Musk and Trump are in their cost cutting efforts, the more I think the economy will slow down. To the extent that DOGE eliminates jobs in the Education Department and other bureaucracies, unemployment will go up, and total consumer spending will go down.
Trump’s crackdown on illegal immigration will also have a similar effect. Migrants are no longer flooding our country; and although the courts are now slowing the deportation of the “undocumented,” I think it is inevitable that an increasing number will be sent back to their native homes. Thus, these people will no longer be spending the massive amounts of economic subsidies provided by federal, state and local governments and by charitable organizations. The area most affected could very well be housing. Reduced immigration will mean less demand for housing, and that could very well translate into lower asking and sales prices for homes and reduced rental rates.
We believe that reduced consumer spending, along with other major initiatives of the Trump Administration (increased energy production and a more relaxed regulatory environment), will lead to a lower inflation rate and a lower interest rate structure. That will be most helpful in reducing the interest expense that is consuming such a large part of the federal budget, but what about the tariffs? Our answer is that Trump’s tariff structure is still being negotiated, so at this point, its ultimate effect will be hard to tell. Whatever the final outcome, the tariffs will tend to elevate the prices of the affected goods. However, I think the other deflationary factors mentioned above will more than offset any inflationary effect of the tariffs.
On balance, I think it will all be good in the long run. One of the main objectives of the Trump tariffs is to bring back manufacturing to the United States. Assuming that happens (and it will take time), it will mean more higher paying jobs for the American middle class. The decline in immigrations should have a more immediate effect by reducing the labor supply, and that will tend to raise the wage level for American workers. In contrast, all of this could easily lead to a slower business climate, and declining pricing power and profitability for both large corporations and smaller businesses. I do not think this scenario is super bullish for the stock market or for gold, both of which are near record highs and are already expensively priced.
Finally, I am not a believer that Trump’s tariffs will raise enough money to significantly reduce America’s huge budget deficit, but I do believe that a successful effort by DOGE will be much more meaningful. For the sake of a debt free future for our children and grandchildren, I think it is essential that Musk does succeed.
Please explore the links below!
Comments