Outgoing treasury secretary Janet Yellen has handed the new president a nasty surprise. Last Friday, just three days before Donald Trumpâs inauguration, Yellen sent a letter to congressional leaders stating that the government would reach its statutory borrowing limit on 21 January, after which the Treasury would be forced to resort to emergency measures to continue to keep the government funded.
Is it a coincidence that the money has run out on Trumpâs first day in office? Possibly. But it may also be the case that handing him an empty piggy bank is a strategic move. This could set up a fight between the incoming administration and Republicans in Congress, whom the president will have to convince to raise the debt limit.
Trump himself has criticised Republicans in Congress for their previous decisions on the debt ceiling, and even called for the limit â first established in 1917 â to be scrapped, a position also promoted by Elon Musk. Incoming treasury secretary Scott Bessent said in congressional hearings last week that the debt ceiling is a ânuanced issueâ, but that if Trump insisted on scrapping it he would work in that direction.
The problem with scrapping the debt limit is that it might send a negative signal to markets about the fiscal credibility of the United States. DC think tanks which keep an eye on US finances, almost all of which are Right-leaning and allied with Republicans in Congress and the Senate, are projecting a very grim trajectory for the countryâs fiscal future. The Peter G. Peterson Foundation, for example, projects that on its present trajectory the debt load will rise from 97.2% of GDP in 2023 to 166.2% by 2054.
Nor is it just the debt burden itself that is of concern to those monitoring the fiscal situation. Interest payments on the current federal debt are now the governmentâs third-largest expense, and are almost as large as the entire defence budget. The Peter G. Peterson Foundation only sees these rising further, from an annual cost of around $1 trillion in 2025 to roughly $1.7 trillion in 2034.
The federal deficit itself currently sits at around 6.5% of GDP, which is pretty much unheard of outside of wartime or recession. The incoming administration has committed to reducing the figure to 3%, but it remains unclear how it would achieve this without substantial tax increases or cuts to government programmes such as social security â which Trump has taken off the table.
A report last summer suggested that during his first presidency Trump added twice as much to the national debt as Biden, borrowing $8.4 trillion to his successor’s $4.3 trillion. Yet this doesn’t change the fact that the deficit has increased and, much like Labour in the UK, Trump is entitled to blame his immediate predecessors for a difficult inheritance. There is already chatter in the markets which seems designed to put pressure on the new president. In December a managing director from Pimco, one of Americaâs premier bond funds, wrote in the Financial Times that âweâve been less inclined to lend to the US government at long maturities, favouring opportunities elsewhereâ. She went on to suggest a series of harsh measures that the Trump administration might undertake to bring the deficit under control.
But could Trump get away with these? Two weeks ago, former UK prime minister Liz Trussâs lawyers sent Keir Starmer a cease and desist letter demanding that he stop accusing her of crashing the economy. To this day, she blames a push by civil servants in the Treasury and the Bank of England who did not like her tax policies for the market turmoil that resulted. The mini-meltdown that Trussâs tax cuts triggered certainly raises questions about whether markets, the financial media, and bureaucrats can purposely trigger a bond market crisis to interfere with a government they do not like. Vice President JD Vance raised such a possibility in an interview with Tucker Carlson last year.
During Trumpâs first term, the Democrats pushed the Russiagate scandal on the administration as political revenge. This time around, there is a good chance they will use Americaâs dire fiscal straits as a similar cudgel.
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SubscribeWell, I’ve not heard tax cuts emphasised by the Trump team this time around- that’s been clear…
Good grief, do you not know what has to come before the House by end of March. Yep Billionaire tax cuts extension.
And you think he was going to declare his prioritisation and interest in that to those he wanted to vote for him?
No wonder this clown gets elected.
You seem to be working hard at your Newspeak lessons
Does the government need these companies? So disclaimer: I don’t know much about Pimco specifically but if I understand correctly, many financial behemoths like asset management and private equity firms profited a lot from the central bank buying spree of bonds after 2008 and 2020. Essentially giving them a huge amount of free money and zero-interest credit. So who is really lending to whom if you buy bonds with public money in the first place? Since the money supply in the private sector generally increases with government deficits, the entire idea that the private sector lends to the government seems to have things backwards.
Also I wonder, do these financial companies add anything real to the economy in the aggregate and in the long term? Sure, they might manage things like pensions funds but is their business model not simply based on rent reeking?
To me this is a clear justification/opportunity to start hacking out the state from day one. Milei style.
Also, the situation existing where any administration would deliberately leave the country broke on the way out in order to screw over the incoming opposite party qualifies as treason.
He could of course find a $22billion ‘black hole’ a la Rachel from Complaints (although he’d need to add a zero at the end).
Sound like a job for DOGE to solve. Raising the limit may not be a problem for the market if it has confidence that an axe will be taken to unnecessary expenditure. Retiring the DEI departments seems a good start. Unlike Truss Trump is not emphasising tax cuts at this time.
Good. He wouldn’t want to crash the economy like Truss did.
He’s given DOGE 18months. Not a sign of confidence many easy pickings. The DEI suspensions won’t save anywhere near the mythology. And remember they remain on full pay for the time being. Where’s he finding Elon’s promised ÂŁ2trillion? The big costs are in entitlements and defence contracts. He didn’t say he was cutting any entitlements and Defence is a pork barrel nightmare. Vivek has grasped it already and left DOGE on Day 1.
There will be savings and there will be value in driving this, but it won’t add up to anywhere near what he needs to sustain the Billionaire tax cuts and his other promises. You are clearly not well informed in the tax cuts extension that have to come before the House in the next few months at the same time as the debt ceiling. Watch closely the later weeks of March.
In each and every particular the democrat party pisses down on Americans.
A great opportunity to fire tens of thousands of parasitic democrats collecting Federal paychecks. It is also an opportunity to scutinize Yellin for her records and actions and bank accounts.
“During Trumpâs first term, the Democrats pushed the Russiagate scandal on the administration as political revenge. This time around, there is a good chance they will use Americaâs dire fiscal straits as a similar cudgel”. That’s politics for you.
Dire straits brought about by Democrat recklessness and possible malfeasance?
The Democrats have been doing everything possible to screw up as much as possible recently to make it as hard as possible for Trump to do anything effective. They’ve decided if they can’t be in charge then everyone is going down with them. I hope they stub their toe in the morning, I hope they don’t have milk for their cereal and I hope their gas tank is always empty and they trip on their shoelaces.
Trump wants to get rid of the debt ceiling so he can print unlimited amounts of money and increase the national debt by 10 trillion in the next 4 years, give tax cuts to his billionaire friends who are all smiles these days, and the privatized Musk space program. He also wants to make his crypto bros rich by devaluing the US dollar,. The greatest swindle in US history is coming, enjoy the show for now, but be prepared to pay for it later with inflation and an inevitable debt crisis by 2030. The average American will be so skrewed in the end, with collapsing social security and Medicare programs, interest on the national debt already exceeds defense spending and will continue to increase indefinitely. Cutting civil servant jobs won’t make an iota of a difference in the equation, it’s a fantasy, if he cuts spending too much he will cause a recession and make deficits worse. Enjoy the great swindle and shit show which will result. The billionaire bros will be pleased as they sail off in their 200 million $ yaughts, at least someone will benefit.
You might be more convincing if you learn to spell e,g not skrewed but screwed. Not yaughts but yachts.
Immaterial
Sense you found DC’s drawing attention to the reality somewhat jarring. For those paying attention to important details and not distracted by red meat these realities been staring at us for months.
I think it might be more productive to discover what the democrats did with the money during their period in office, they appear to have been completely reckless but most especially since the election. Itâs as if they were setting the US up to collapse economically. Biden issued over 8000 pardons⊠that in itself seems highly suspicious to many.
US Economy and Stock market actually pretty healthy compared to what they inherited in 2020. To the point a surge in inflation again a risk (with Trump adding to that with his Tariffs idea which fall on the buyer of goods not the seller. You wonder sometimes if Trump worked that out yet?). But it is relative and insufficient Americans felt it. The Rich continue to do much better than the average Joe. Now you think Trump going to change that?
It’s obvious, inequality will get much worse. The average Trump supporter will be so disappointed. The techno bros plan on eliminating millions of jobs with AI and deregulation. And tax cuts will benefit the already rich. The great swindle of the middle class is going to accelerate
Classic! Sod the country; letâs screw our opponents.
The obvious strategy for Trump is just to start to stop paying for the parts of the Federal Government that he wants to close down.
Which bits CB and how much would it save?
Piddling. You need to read up on what the Federal Govt spends it’s money on.
I wonder if this was set up to tie his hands domestically, but it may backfire by accelerating the demise of the Feds and may erode confidence in the reserve currency. This could also embolden BRICS nations to establish their own monetary systems. If this was done intentionally, it carries a high risk.
That said, I believe the economy under Trump might improve if he adopts an isolationist approach but focuses on maintaining the reserve currency. He could fire a lot of people under budget restraints. However, if the U.S. dollar faces even a slight challenge at this juncture from external forces, the country could be in serious trouble or even end of hegemony
He takes steps that add to international instability and the dollar rises as investors flock to a supposed safe-haven. Thus making US exports more expensive and hitting his own economy. Isolationism likely to do just that.
Just as the boy’s repeated cries of wolf led to his warnings being ignored when real danger finally appeared, investors, after being repeatedly misled with empty promises, may find their trust so eroded that they may start to ignore him! There is a fine line!
Quite an obvious mitigation. Don’t extend the Billionaire tax cuts when they come up for renewal v shortly. That’s a couple of trillion.
Ahh, but who’s his main allies? Oh now I see the dilemma. Which way is he going to lean? You know already.
And despite the rhetoric the reality for Trump & Republicans is the tax cuts promised for the Billionaires is massively more expensive than any cuts in Federal spending they can enact quickly without clobbering programmes he promised not to touch. Furthermore for those reading the small print on some of the Executive Orders Trump has already set in motion reductions to the Affordable Care Act that will increase increase premiums for c25million low income families. Now where was that promised and does it help the ‘little guy’ and the ‘left behinds’? Mid terms anyone?
‘Chickens and Roost’. Will take a little while yet but gradually the con-job will reveal itself.
A bond crisis canât be triggered unless the fiscal and debt situations are in a mess to begin with.
Reaching the borrowing limit comes as no surprise to anyone paying attention.
So either Philip Pilkington isn’t paying attention, or worse.