The Easy Part May be Over

There are (at least for now) limits to even Donald Trump's ability to govern by decree. In the not too distant future he is going to be facing the threat of default on the national debt while simultaneously pressing to extend his first term tax cuts. Here he may be facing two very powerful obstacles. The first is the greatly diminished, but not yet extinct, fiscal conservative wing of the GOP. There are still several dozen Republicans in Congress who have never once voted to increase the Federal debt limit. They are going to be a hard sell and with their razor thin majorities in both houses of Congress, Republicans may have to do some deal cutting with Democrats to get even a temporary spending bill and short term hike in the debt limit through. 

The second obstacle is the bond market. Interest rates have been drifting up over the last few months, and the Federal Reserve is sending signals that it may not be in a hurry to cut rates. If bond investors start getting nervous about the US Government's ability to get its finances in order, they can make their displeasure known by demanding higher interest rates in order to lend the government money. Given the current level of debt, this could create serious problems fast. The US Government is currently borrowing more money just to pay the interest on the existing debt, than it  is spending on the entirety of the national defense budget annually. Back in the early1990s Bill Clinton's ambitious agenda got almost completely shut down by the so called "bond vigilantes," leading the famed Democratic political guru James Carville to opine that when he dies he wants to come back as the all powerful bond market. Clinton, with a lot of help from a frequently hostile Republican Congress (that actually was fiscally conservative) has gone down in history as the last president to balance the Federal budget. Privately he groused that he had been turned into an "Eisenhower Republican." But when he left office in 2001 we were running surpluses that were being used to pay down the principal on the debt, which in turn meant paying less interest and freeing up more money. Then came George Bush (43) and everything went to the hot stinky bad place. 

Meanwhile Trump is threatening to start trade wars with a not insignificant part of the rest of the world, including countries that we have historically had very close relations with. A tariff war would have immediate and serious consequences, almost certainly spiking inflation and damaging GDP. 

All of which brings to mind the old Chinese curse; "may you live in interesting times."