The Debt Monster and the Big Men Who Will Fight it

Government spending (and debt) keep smashing over new milestones. Today we get a report that says October clawed its way to the highest monthly deficit in history with the exception of that one Covid lockdown year from hell. Bottom line: The Biden government spent $257-billion more than it took in. So, we’re now piling up over a quarter-trillion per month!

The lockdown year, of course, shrank October’s revenue to nearly nothing back in 2020 because businesses that aren’t open don’t have any taxes to pay. At the same time, the government was shelling out hundreds of billions to businesses to offset the economic impact the governments of Biden & Trump had created with their lockdowns and social-distancing occupancy restrictions, etc..

This year, however, government tax revenues are 37% higher than back then, but government spending is 12% higher than it was during that massive emergency bailout period. Gee, it’s almost like the pandemic never ended. That’s insane.

And that’s why Trump is hiring a man with a plan for neutering the government and bringing all this back under control. I certainly won’t promise that so many drastic changes will not cause anything other than chaos; but, hey, it’s probably better than the current plan. We need to cut, and we need to cut deeply and broadly and stop spending money we don’t have. That means we also need to do as we did in the Clinton years when Gingrich made huge cuts and Clinton added some tax revenue to pay for all we bought. It got us closer to a true balanced budget than any other period in the last half a century.

We’re far beyond the sweet spot of a true Laffer Curve where decreasing taxes increases tax revenue, as we discussed in an earlier article that showed revenues after inflation going down with the last cuts. (See: “Easy Fixes for Social Security and Fair Taxes to End Deficits for Good” and a much older article from my beginning days on The Great Recession Blog: “Do Higher Taxes Raise More Money? (What about them Bush Tax Cuts?”)

The man with a plan

Trump has a man who promises to dismantle the woke and weaponized government of the Biden years and to not spend all the money that congress approves just because congress approved it. How far that will fly with the Supreme Court as the Trump crew likely throttles out of existence all of the Democratic programs congress has created, I don’t know. That will be like the president simply overruling congress on everything he doesn't like. Expect a big battle there!

Russell Vought is one of many contributors to the Heritage Foundation’s Project 2025, which Trump disavowed. Now, after the campaign party is over, Trump is putting people in charge who helped write the plan. Of course, Trump is now only one vote away from congressional deadlock, so a single Republican holdout can trash any hope of any action out of congress by leaving Trump without a majority vote.

With Democrats sure to be set against Vought’s confirmation and only two Republican votes needed on their side to get a majority (one if the last last contested seat goes to Dems), confirmation seems unlikely:

Sen. Patty Murray of Washington, has made her opposition to Vought clear. She called him a “far-right ideologue” seeking to unlawfully expand executive spending powers, fire “tens of thousands” of federal workers and “gut programs that help working families” in a statement after Trump announced his selection.

Trump may squeeze him through by using a short-term recess appointment; but those don’t hold up for long.

If confirmed, Vought would play a key role in next year’s budget reconciliation and appropriations debates, as well as in a new set of negotiations to lift the debt limit. Senators are sure to scrutinize Vought’s past commentary, including his no-compromise approach to spending deals.

He’s called for shutting down the government rather than accepting a bipartisan stopgap funding bill the last two years, for instance. “The Biden regulatory agenda comes to a grinding halt with a government shutdown,” he posted on X in September 2023.

If he makes it through the barricades to entry, we can be pretty sure he’ll go after that government spending with a broad axe. How much of his plan he’ll get passed by congress with such a thin majority is another matter; but he’s a man with plan — a war plan (and you can read about the details of the plan in the highlighted article link below).

The trouble with Trump

Problem is that Trump also loves to ratchet up huge deficits, as Bill Bonner describes in his article today:

Donald Trump is going to Make America Great Again... in the same way, most likely, he made it great the last time he was president.

Last time, Trump increased spending more than any president in US history... and added more debt than ever before. As in any debt-fueled spending spree, the initial effect was pleasant. Stocks went up. People spent their stimmy checks. It felt like a real boom.

And then, the bills came in. They couldn’t be paid. So, new money was printed up and added to the money supply. The national debt rose by $8 trillion and the resulting inflation caused a 25% increase in the general price level.

Trump used debt and bankruptcy as a form of finance throughout his business career, so we’ll see if he can practice true fiscal restraint anymore than Reagan did.

This time around, Trump also has some BRICS to be laid as he builds America better than Biden:

"The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER," Donald Trump wrote in a social media post Saturday outlining his plans to reestablish US global economic primacy after stepping into office next month.

"We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty US Dollar, or they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful US Economy. They can go find another 'sucker!' There is no chance that the BRICS will replace the US Dollar in International Trade, and any Country that tries should wave goodbye to America," Trump warned.

While I’ve never been a believer that the BRICS can accomplish that anyway, and they haven’t shown a lot of resolve to even try, as many of them cherish their US trading relationships too much to venture that risk so have sworn off creating a competing currency, the countries Trump battles against with tariffs will, of course, fight back, just as China’s already doing in today’s news in response to Joe Biden’s increased restrictions by suddenly cutting off a number of metals that the US is highly dependent upon.

Years of tariff wars and hugely restricted trade are not likely to improve any nation’s economy. So, there is going to be tremendous turmoil in all of this political and international financial fighting. I have no idea how the dust will settle, but I’m starting to think I picked the wrong year in 2024 to refer to as “the Year of Chaos.”

Then there is the Trump thump with a big stick: On the war front, Trump is suddenly not so anti-war as he sounded when campaigning:

Trump demands immediate release of Oct. 7 hostages, says otherwise there will be 'HELL TO PAY'

“Hell to pay” almost certainly means a much hotter war if Hamas doesn’t capitulate to Trump’s demand.

In summary

Says, Bonner:

It’s either cooperation or confrontation, free trade or managed trade, diplomacy…or brute force. On the downswing of the Primary Political Trend, the rule of law gives way to rules imposed by men. And whether you voted for Kamala or Donald, the style might be different, but the trajectory would be much the same.

Don’t get me wrong: I’m all for whipping government spending and waste into shape and cutting the Biden government back out of existence with all of its 1984-style dominance over our lives; but, to do that, Vought will need a president solidly on board with his masterplan, and Trump has always loved debt and lots of it and loved low interest rates as cheap-and-easy economic fuel, so it’s a little hard to envision him as the true King Cuts … if history means anything. He’ll also likely need a significantly bigger majority in both houses of Congress.

The other side will fight back with greater intensity than ever, and “the other side” does not just mean Democrats who will fight purely for party warfare reasons (like the Republicans did against Obama in order to make sure he had no wins even if it was over an idea, as John Boehner said, that Republicans would normally like). It also means all the military-minded Republicans who never saw a military debt or war they wouldn’t approve. The Welfare Party and the Warfare Party equally love making your children or grandchildren pay for all of their expressions of generosity to the poor and blasts of conquering power. It is not their strength they spend, but their grandchildren’s.

I think we can expect a year of intense battles, but I’m a bit hesitant to use the word “chaos” again, much like the Fed is hesitant to use the word “transitory” again for the present rise in inflation. So far, the Left has been far tamer in responding to Trump’s victory than the civil-war-like action I expected. Of course, the year isn’t over; and as those on the Left see more and more of what Trump has in store, the heat is bound to rise.

To really make these kinds of changes work and hold, you need a man like Reagan who can build some consensus among his enemies, but you also need a man unlike Reagan, who will curb his own big-spending ambitions.