When Prime Minister Liz Truss announced a major tax restructuring that amounted to a tax cut in Great Britain, the bond market went nuts. It cost her both her tax cuts and her tenure in office.
It's going to be difficult, very difficult, to cut personal income taxes from this point forward. I think some of the Trump tax cuts can be extended (corporate and cap gains tax cuts should remain), but some of the personal tax cuts will have to be modified.
Forget increasing the size of the SALT deduction. If anything, that deduction should be eliminated.
Of course, across-the-board cuts in defense, entitlements, and other discretionary spending will have to take place. The DOGE target of $2T is a good one; let's see if we can get there. The Wharton plan addresses entitlement cuts; defense needs to quit riding the gravy train and building planes to sit in the Arizona desert; and we're going to have to triage discretionary spending.
Great piece, Erick. "There is a way forward for the GOP." There has ALWAYS been a way forward, but it requires fiscal responsibility. And you can count the number of fiscally responsible Representatives AND Senators on the fingers and toes of me and my wife.
The DOD can’t pass a audit federal employees don’t have to come in to the office for work when they do come in does anything get done we dish out billions to foreign countries then tell Americans when we have a disaster here’s 750 bucks don’t spend it all in one place. I’ve bitched about government spending most of my adult life and it has only gotten worse.The first thing we have to do is cap spending to pre Covid levels then claw back any money that been misappropriated then cut cut cut if we don’t we will soon be a third world nation
$$ - is it True that Federal Employees receive Salaries, and benefits better than in Business and they are almost impossible to Fire for not doing their Jobs??
Here is how I see it. Biden caused inflation when he dumped $1 trillion into the economy. Trump will cause inflation if he increases tariffs. Econ 101 cause and effect. I was completely against Biden's cash giveaway because in return for the inflation, we received NOTHING. Just higher prices. IF, and this is a big IF, Trump uses the tariff income to help onshore US manufacturing or other investments in US infrastructure, then I am willing to pay the inflationary cost that comes with it because I will benefit from it. If he does not, then his tariffs will be just like Biden's... wasted money with no benefit.
I'm surprised you're biting on this left wing narrative. This is being pushed out by the likes of Andrew Ross Sorkin and the Bloomberg democrats of NYC. It ignores that we have a fundamentally different form of government than the UK. You also admitted on your show on January 16 that Liz Truss's policies should have been implemented. So which is it? Are conservative policies like lowering taxes good or should short term price action in the treasury market decide all future fiscal policy? Pick one.
The UK bond market definitely bullied Truss into submission. Do you think American congress critters won't pass a tax cut because of the U.S. bond market? Hogwash. It's a stretch at best, and wishcasting at worst. The democrats who control high finance WANT the bond market to stop Trump from cutting taxes. It's not actually going to stop him though.
Investors are notoriously fickle. Their short term panic doesn't mean we can't take long-term actions that will help everyone. This "bond market is in control" theory is narrative creation in real time. Don't take the bait!
When Clinton was president he was told (I think by Greenspan) that if he didn't get budgets under control the bond markets would drive rates up and hurt his economy. His comment was "You mean my re-election hinges on a bunch of f---ing bond traders?" When told yes he became a fiscal disciplinarian. Giving us budget surpluses the last 3 years of his administration.
So, yes. The bond markets can be very focused and influential.
If tax cuts to businesses and the wealthy come at a time when businesses are flush with cash but have no real viable projects to invest in all it will do is grow the budget deficits. If there are plenty of good projects for money they will result in economic expansion. I don't know which environment we are in right now so can't comment on how effective the cuts will be. There are plenty of economists who do know though.
Good morning Erick the government has to cut Waste & Coruption and will never be dept free because it refuses to run like a business and there is too much Stealing from it’s people
I feel exactly the same. I only have a small grasp on economics, but i do know our federal government is a bloated, ridiculous leviathan that is in need of a strict diet. Cut spending.
Until someone in Washington DC is interested in lowering government spending, nothing will change. Neither party is interested in reducing spending. They both believe, because no one has ever held them accountable otherwise, that throwing money at a problem is the solution people want. When our economy collapses under the weight of the debt they've piled up they'll all look around in amazement and wonder how could that possibly have happened. We will all know, but they won't.
Tarrifs are very complex. While they are, on the surface, inflationary, if there is belief that they are long term, they spur investment to be re-directed from abroad to domestic, particularly for manufacturing, as well as drive negotiations with trading partners. Done right, they can be a good negotiating stick to make things better for America in the long run. In other words, Economics are not static - tarrifs do not simply mean higher prices and that's the end of it.
Bonds are in for a very rough ride, no doubt. But you are right - there is no one better than Bessent to navigate the complexities of the coming bumpy markets.
While we may be able to cut spending and reduce our annual deficit, We will never be able to pay off the tens of trillions in debt. There are really only two ways out of the debt crisis - growth to reduce the debt to gdp ratio, or inflation to devalue the debt. Let's hope it's more the former than the latter.
If we have increased tariffs, we can't do it across the board. They need to be done with specific non-revenue objectives in mind, such as decoupling us from the PRC and other geopolitical objectives.
And we can't close off production from every lower-cost location. If we allow friendshoring in Latin America (Mexico, Argentina?) that would have a significant geopolitical upside.
Too many years of just printing money and frivolous spending has gotten this country in debt up to its eyeballs. Lawmakers have become a teenager at the mall with a credit card with no limits. I may not understand the economics of government but I do know stupid with no consequences when I see it. Stop throwing money at a problem without fixing it. Hopefully Trump has the right people who can tip toe us through this. It’s my money that I worked for that you are pissing away.
Not only that it’s not a genocide but it’s one of the lowest civilian combatant ratio in any war.
In the 2016-2017 Battle of Mosul, the biggest urban battles since WWII, the U.S. led Iraqi Security Force killed 10,000 civilians to destroy 4,000 ISIS in the city. That is a 1 to 2.5 combatant to civilian death ratio.
For the detailed analysis after 15 months of close review please see the thread of Aizenberg on X
The economic situation is because of Bidens inflation. And the problem is prices won’t go down. Because to have negative inflation you get something called deflation which is oddly worse.
Although were I in charge I would push for a deflation period reset. Much like what Roosevelt did during the depression shutting down banks for a week to reset the economy.
Get prices back down and then control inflation.
I don’t know if that’s even possible but with prices being high and everything really costing 40% more than it did 4 years ago it’s going to be difficult.
You either have to provide relief through tax cuts or increase wealth with wage hikes. If businesses have more to spend the more they can offer in wages to employees.
So what to do?
Unfortunately I didn’t understand fully what you talked about with bond markets as I don’t know these things. But hopefully as you said Trump has the right person for the job.
What I do understand is this. Biden has truly created a destructive situation and it may already be too late. But Trump will do his best. There’s no other option.
Our energy independence is a start, but it isn't a complete solution. Until DC embraces reducing spending on all the extra-constitutional outlays, we will never get this under control.
It's going to be difficult, very difficult, to cut personal income taxes from this point forward. I think some of the Trump tax cuts can be extended (corporate and cap gains tax cuts should remain), but some of the personal tax cuts will have to be modified.
Forget increasing the size of the SALT deduction. If anything, that deduction should be eliminated.
Wharton did a great analysis on what could be done to get more revenue without hurting the economy. https://budgetmodel.wharton.upenn.edu/issues/2024/12/4/illustrative-reforms-of-federal-tax-and-spending
Of course, across-the-board cuts in defense, entitlements, and other discretionary spending will have to take place. The DOGE target of $2T is a good one; let's see if we can get there. The Wharton plan addresses entitlement cuts; defense needs to quit riding the gravy train and building planes to sit in the Arizona desert; and we're going to have to triage discretionary spending.
Great piece, Erick. "There is a way forward for the GOP." There has ALWAYS been a way forward, but it requires fiscal responsibility. And you can count the number of fiscally responsible Representatives AND Senators on the fingers and toes of me and my wife.
The DOD can’t pass a audit federal employees don’t have to come in to the office for work when they do come in does anything get done we dish out billions to foreign countries then tell Americans when we have a disaster here’s 750 bucks don’t spend it all in one place. I’ve bitched about government spending most of my adult life and it has only gotten worse.The first thing we have to do is cap spending to pre Covid levels then claw back any money that been misappropriated then cut cut cut if we don’t we will soon be a third world nation
Kelly, you rock.
$$ - is it True that Federal Employees receive Salaries, and benefits better than in Business and they are almost impossible to Fire for not doing their Jobs??
The government employees want a 32 hour work week. I think Elon can an even shorter work week.
Here is how I see it. Biden caused inflation when he dumped $1 trillion into the economy. Trump will cause inflation if he increases tariffs. Econ 101 cause and effect. I was completely against Biden's cash giveaway because in return for the inflation, we received NOTHING. Just higher prices. IF, and this is a big IF, Trump uses the tariff income to help onshore US manufacturing or other investments in US infrastructure, then I am willing to pay the inflationary cost that comes with it because I will benefit from it. If he does not, then his tariffs will be just like Biden's... wasted money with no benefit.
I'm surprised you're biting on this left wing narrative. This is being pushed out by the likes of Andrew Ross Sorkin and the Bloomberg democrats of NYC. It ignores that we have a fundamentally different form of government than the UK. You also admitted on your show on January 16 that Liz Truss's policies should have been implemented. So which is it? Are conservative policies like lowering taxes good or should short term price action in the treasury market decide all future fiscal policy? Pick one.
The UK bond market definitely bullied Truss into submission. Do you think American congress critters won't pass a tax cut because of the U.S. bond market? Hogwash. It's a stretch at best, and wishcasting at worst. The democrats who control high finance WANT the bond market to stop Trump from cutting taxes. It's not actually going to stop him though.
Investors are notoriously fickle. Their short term panic doesn't mean we can't take long-term actions that will help everyone. This "bond market is in control" theory is narrative creation in real time. Don't take the bait!
When Clinton was president he was told (I think by Greenspan) that if he didn't get budgets under control the bond markets would drive rates up and hurt his economy. His comment was "You mean my re-election hinges on a bunch of f---ing bond traders?" When told yes he became a fiscal disciplinarian. Giving us budget surpluses the last 3 years of his administration.
So, yes. The bond markets can be very focused and influential.
The Progressive moles in the bureaucracy will do their best to crash the economy so Trump is blamed.
If tax cuts to businesses and the wealthy come at a time when businesses are flush with cash but have no real viable projects to invest in all it will do is grow the budget deficits. If there are plenty of good projects for money they will result in economic expansion. I don't know which environment we are in right now so can't comment on how effective the cuts will be. There are plenty of economists who do know though.
Good morning Erick the government has to cut Waste & Coruption and will never be dept free because it refuses to run like a business and there is too much Stealing from it’s people
I feel exactly the same. I only have a small grasp on economics, but i do know our federal government is a bloated, ridiculous leviathan that is in need of a strict diet. Cut spending.
I think the message is clear - we just need to rein in spending. There are actually many ways to accomplish that goal.
Well-stated in a calm, non-finger-pointing tone. Thank you, Erick. This sort of essay is why I an a paid subscriber.
Until someone in Washington DC is interested in lowering government spending, nothing will change. Neither party is interested in reducing spending. They both believe, because no one has ever held them accountable otherwise, that throwing money at a problem is the solution people want. When our economy collapses under the weight of the debt they've piled up they'll all look around in amazement and wonder how could that possibly have happened. We will all know, but they won't.
Tarrifs are very complex. While they are, on the surface, inflationary, if there is belief that they are long term, they spur investment to be re-directed from abroad to domestic, particularly for manufacturing, as well as drive negotiations with trading partners. Done right, they can be a good negotiating stick to make things better for America in the long run. In other words, Economics are not static - tarrifs do not simply mean higher prices and that's the end of it.
Bonds are in for a very rough ride, no doubt. But you are right - there is no one better than Bessent to navigate the complexities of the coming bumpy markets.
While we may be able to cut spending and reduce our annual deficit, We will never be able to pay off the tens of trillions in debt. There are really only two ways out of the debt crisis - growth to reduce the debt to gdp ratio, or inflation to devalue the debt. Let's hope it's more the former than the latter.
If we have increased tariffs, we can't do it across the board. They need to be done with specific non-revenue objectives in mind, such as decoupling us from the PRC and other geopolitical objectives.
And we can't close off production from every lower-cost location. If we allow friendshoring in Latin America (Mexico, Argentina?) that would have a significant geopolitical upside.
Too many years of just printing money and frivolous spending has gotten this country in debt up to its eyeballs. Lawmakers have become a teenager at the mall with a credit card with no limits. I may not understand the economics of government but I do know stupid with no consequences when I see it. Stop throwing money at a problem without fixing it. Hopefully Trump has the right people who can tip toe us through this. It’s my money that I worked for that you are pissing away.
👏👏👏
Well Rand Paul did say they have borrowed a million dollars every minute for 20 years and Joe Biden increased it exponentially.
DNC Deceiving Needy Citizens
By the way here is final number killed in Gaza
Gaza Fatality Final Estimates:
51,600 total deaths broken down as follows:
22,600 civilians
20,000 combatants
7,000 natural deaths
2,000 deaths caused by Hamas
Civilian/combatant ratio: ~1:1
Not only that it’s not a genocide but it’s one of the lowest civilian combatant ratio in any war.
In the 2016-2017 Battle of Mosul, the biggest urban battles since WWII, the U.S. led Iraqi Security Force killed 10,000 civilians to destroy 4,000 ISIS in the city. That is a 1 to 2.5 combatant to civilian death ratio.
For the detailed analysis after 15 months of close review please see the thread of Aizenberg on X
https://x.com/aizenberg55/status/1879905170856829179?s=46
The economic situation is because of Bidens inflation. And the problem is prices won’t go down. Because to have negative inflation you get something called deflation which is oddly worse.
Although were I in charge I would push for a deflation period reset. Much like what Roosevelt did during the depression shutting down banks for a week to reset the economy.
Get prices back down and then control inflation.
I don’t know if that’s even possible but with prices being high and everything really costing 40% more than it did 4 years ago it’s going to be difficult.
You either have to provide relief through tax cuts or increase wealth with wage hikes. If businesses have more to spend the more they can offer in wages to employees.
So what to do?
Unfortunately I didn’t understand fully what you talked about with bond markets as I don’t know these things. But hopefully as you said Trump has the right person for the job.
What I do understand is this. Biden has truly created a destructive situation and it may already be too late. But Trump will do his best. There’s no other option.
If Trump can get gas and fuel prices to drop somewhat I “ think🤞” the prices of everyday goods will drop.
Our energy independence is a start, but it isn't a complete solution. Until DC embraces reducing spending on all the extra-constitutional outlays, we will never get this under control.
I wholeheartedly agree.