Here! Rub dubbing. Trump won!
Make a toast or say a prayer. It all depends on your political and spiritual preferences. Sometimes it’s time to kiss the bottle. That’s why there are times when we kneel in church. Perhaps now is the time for both.
“This will truly be America’s Golden Age.” Trump said.
We wish the President-elect all the best in this endeavor. There is certainly much work to be done to restore America’s glory. This primarily involves clearing huge piles of rubble from the past.
There is a real possibility that the ultimate financial reckoning for over 110 years of shortcuts and reckless decisions will occur on Trump’s watch. Perhaps that’s why Democratic negotiators appointed Harris and Walz, two clear losers, to headline the party.
When everything goes up in smoke, you need a scapegoat. Media elites can point to someone and say: ‘It’s all his fault.’ Without a doubt, Trump makes the perfect fall guy.
We don’t envy him. He faces an almost impossible task. He must reverse the huge debt crisis that has already occurred. His track record on this issue is not very promising. The last time Trump was president, the national debt had increased by $8 trillion.
Maybe he’s learned a thing or two since then. Maybe Elon Musk and the new government efficiency department can hack it. 2 trillion dollars From annual expenses. If so, the settlement date may be delayed.
But it could also trigger a deep recession.
dependency
In fiscal year 2024, the U.S. Treasury raised $4.92 trillion. But it paid out $6.75 trillion. The difference, or deficit, was $1.83 trillion. And this difference was covered by debt.
Remember, deficit spending involves borrowing money from the future to spend today. Extreme levels of deficit spending have persisted for decades. As a result, wide sectors of the economy have become dependent on it.
Defence, health, transportation, technology, energy, agriculture, education. These economic sectors and the jobs they provide all depend on government spending. But that’s not all…
There are also large social classes that rely on transfer payments. Without Social Security, Medicare, welfare, EBT cards, and other free money provided by the government, they would be in great trouble. Additionally, there is an army of government employees and government contractors who depend on the mercy of Washington for their daily bread.
As Musk said, reducing annual spending by $2 trillion would reduce government spending by nearly 30%. How will the economy and those who depend on government spending react to this suddenly depleted gravy train? Will the economy suddenly collapse?
Musk’s plan to eliminate $2 trillion in annual spending sounds great as a headline for a campaign speech. However, a concrete action plan is still lacking.
Here at Economic Prism, we took a quick look at government spending to understand where $2 trillion in spending cuts is coming from. Here is our quick and dirty review…
trimming fat
Social Security, the largest budget item, had a budget outlay of $1.46 trillion in fiscal year 2024. So if all Social Security beneficiaries received a 30% cut, which is highly unlikely, it would amount to a spending reduction of about $440 billion. Where will the remaining $1.56 trillion come from?
Next on the list is the healthcare sector with spending of $912 billion in fiscal 2024. A 30% spending cut would amount to about $274 billion. So, combining Social Security and health would result in a $714 billion reduction in spending. Reducing spending by $2 trillion would still result in about $1.29 trillion in cuts.
The next budget line is $882 billion, net interest on debt. The only way to reduce your net interest on debt is to stop adding debt and refinance your debt at a lower interest rate. Unfortunately, Treasury yields are rising. Therefore, spending to pay interest on debt will also increase.
There are fewer and fewer opportunities for cuts along budget lines. Medicare, National Defense, Security Income, Veterans Benefits and Services, Education, Transportation, Others.
The remaining seven items amounted to $3.4 trillion in spending in fiscal 2024. An overall 30% cut would amount to $1.2 trillion. So if you add in the $714 billion in cuts to Social Security and health care, you’ll end up with $1.7 trillion less spending. By cutting another $300 billion, Musk could reach $2 trillion.
But is that likely?
We see the odds of Trump pushing through such drastic spending cuts as Musk bids to be less than zero. Moreover, it is much less likely that Congress, which holds the money, would propose it in the first place.
We’re not saying these spending cuts are a bad thing. In fact, they would be good. And that should have happened over 40 years ago. If we had, we wouldn’t have been in this financial mess in the first place.
The Road to America’s Golden Age
A healthy economy should not rely on massive deficits to function. Balancing the budget will go a long way toward fostering a healthy, inflation-free economy sometime in the future. But the immediate consequences of stripping away $2 trillion in government spending that hundreds of millions of people depend on would be cruel.
As spending disappears and associated jobs disappear, gross domestic product (GDP) will fall. A sharp decline in GDP would cause stock markets to collapse along with it, which would also take away the capital gains taxes the Treasury relies on.
Additionally, jobs that indirectly depend on government spending will also be hit. For example, if a government contractor loses his job, how will he pay for car insurance or a Saturday night out?
You can quickly imagine the numerous impacts a sudden loss of $2 trillion in government spending would have on the economy.
Likewise, as GDP decreases, tax revenues also decrease. So even if you cut spending, the deficit may initially increase.
However, over time, as the economy learns to become self-reliant, the prices of assets such as homes and stocks fall to a certain level, and former government employees find productive jobs, a truly self-reliant economy will have to go through the following process. shape. This will truly mark a golden age for America.
The path from here to there is full of rocks and traps. But it is a road worth taking.
The alternative, of course, is to continue on the current trajectory. Exponential debt growth. Devaluation of the dollar. And then there was a huge explosion of hyperinflation.
President Trump also plans to introduce large-scale import tariffs as part of his economic plan. This will have an inflationary impact on prices of consumer goods. Perhaps the tariffs will bring back some manufacturing jobs. U.S.-made products will have an advantage over foreign manufacturers priced out of the U.S. consumer market because of the tariffs.
Nonetheless, trade interventions generally have a negative impact on the economy. Tariffs also have the potential to spark destructive trade wars, like the Smoot-Hawley Tariff Act of 1930. Tariffs and retaliatory tariffs helped make the Great Depression particularly great.
Let’s hope the Trump tariffs don’t repeat the destructive mistakes of the past. If so, this will be a long detour on the road to America’s Golden Age.
[Editor’s note: Have you ever heard of Henry Ford’s dream city of the South? Chances are you haven’t. That’s why I’ve recently published an important special report called, “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” If discovering how this little-known aspect of American history can make you rich is of interest to you, then I encourage you to pick up a copy. It will cost you less than a penny.]
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minnesota gordon
for economic prism
A return to the economic prism on the road to America’s golden age.
