A Deep Dive Into Sino-American Trade

US National Debt Surpasses GDP

The U.S. government learned last week that it may have reached an unfortunate milestone: The size of its debt surpassed the nation’s total economic output.

It was a striking imbalance, according to early estimates, one that the country has experienced only in rare circumstances — briefly during the pandemic, and in the aftermath of World War II. But the development barely seemed to register in the nation’s capital, where few policymakers bothered to acknowledge the latest warning sign about the government’s poor fiscal health.

The root of the problem is well-documented and widely known. U.S. debt has soared in recent years because of a mismatch between federal spending and tax revenue, one complicated by a rapidly aging population, which has driven up costs across government.

For economists, the fear is that these conditions are inching the United States toward a fiscal crisis, one in which its debt is so great that the country can’t easily afford to pay the rising interest on it. But their warnings have long gone unheeded in Washington, calcifying the strains on the government’s balance sheet in ways that President Trump’s agenda is expected to exacerbate.

Despite winning a congressional majority, Republicans have cut little in spending over the past year. With the few savings they did achieve, they put that money toward offsetting a fraction of the cost of Mr. Trump’s tax cuts, which are still expected to add more than $4 trillion to the debt in the coming years.

Those fiscal risks aren’t yet fully realized in the total federal debt held by the public, which topped about $31.26 trillion in March, federal records show. By comparison, the nation’s nominal gross domestic product, a measure of its output using current dollars, reached $31.21 trillion in the 12-month period ending in March, according to data released last Thursday and analyzed by the Committee for a Responsible Federal Budget, which supports deficit reduction.

As a result, the ratio of debt to G.D.P. — a widely regarded metric for assessing the government’s fiscal health — slightly exceeded 100 percent in the committee’s calculations. That last occurred for a short period in 2020, as the pandemic clobbered the economy and government shelled out trillions in emergency relief, the group found.

Read the rest here.

Ten Years Ago Donald Trump Promised to Eliminate the National Debt. It Has Doubled.

Ten years ago today, Donald Trump said he would pay off the national debt in the span of just eight years.

That did not happen. Instead, the gross national debt has doubled since that day—from about $19 trillion to over $39 trillion. Much of that additional borrowing has taken place during Trump's five-plus years in the White House.

The gap between Trump's outlandish promise and the brutal fiscal reality of the past decade is not just a political gotcha. It's also an apt illustration of how far and how fast the debt has spiraled. And it's a painful reminder of a missed opportunity that Americans will be facing for a long, long time. The bill for these 10 years of fiscal profligacy will be coming due long after Trump has finally departed from the political scene.

But it's a story that starts, as everything in politics seems to these days, with Trump.

Read the rest here.

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Ray Dalio Warns of Debt, Wealth Inequality and America's Drift Towards Authoritarianism

One of the world’s most prominent hedge fund billionaires has warned that rising inequality is turning the US into an autocratic state and condemned business leaders for failing to speak out against Donald Trump’s policies.

Ray Dalio, the founder of Bridgewater Associates, said “gaps in wealth” and a collapse in trust were driving “more extreme” policies in the US.

Speaking to the Financial Times, the veteran financier said many western countries were affected by growing inequality, leading voters to turn increasingly to autocratic leaders.

“I think that what is happening now politically and socially is analogous to what happened around the world in the 1930-40 period,” he said.

“Classically, increased wealth and value gaps lead to increased populism of the right and populism of the left and irreconcilable differences between them that can’t be resolved through the democratic process.

“So democracies weaken and more autocratic leadership increases as a large percentage of the population wants government leaders to get control of the system to make things work well for them.”

Concerns about a significant rise in borrowing by the US government were well founded, said Dalio, who has long predicted a reckoning for economies that allow debts to rise.

In his books, Principles for Dealing with the Changing World Order and How Countries Go Broke: the Big Cycle, he has described how large annual spending deficits and unsustainable debt growth had brought the US economy to the brink of a debt crisis – a situation that had worsened over many years.

“The great excesses that are now projected as a result of the new budget will likely cause a debt-induced heart attack in the relatively near future,” he said. “I’d say three years, give or take a year or two.”

Read the rest here.

Unfortunately, the original interview is behind a paywall. But it is getting a lot of attention in the broader press.

France may be heading into a full blown political crisis

PARIS — President Emmanuel Macron’s allies don’t seem to have any good answers as to what happens after the almost certain fall of the government of Prime Minister François Bayrou in the Sept. 8 parliamentary vote of confidence.

The names of Armed Forces Minister Sébastien Lecornu and Justice Minister Gérald Darmanin are emerging in the chatter as potential successors to the poisoned chalice of the premiership, but what would a new recruit really solve? A new PM will be ensnared in exactly the same quagmire.

French politics will still be too internally riven to pass vital deficit-slashing reforms, despite Bayrou’s Cassandra-like warnings that France could be headed toward a Greek-style debt crisis if it sits on its hands and doesn’t implement an unpopular €43.8 billion budget squeeze.

So how about another snap election? If Macron calls one, the political landscape could still be mired in exactly the same impasse — but the blame after a vote would more obviously fall on him rather than on his prime minister. And all that time, the financial markets will be running out of patience regarding France’s ability to put its books in order.

All in all, a state of shock grips elected officials, aides and advisers from the various parties that support France’s minority government.

Read the rest here.

The Final Tally on Trump's Big Beautiful Bill

Congress’ nonpartisan scorekeeper released its final prediction Monday for how President Donald Trump’s signature legislative achievement will grow the national debt and affect U.S. households.

Over the next decade, the megabill Trump signed on July 4 would increase the federal deficit by $3.4 trillion and cause 10 million people to lose health insurance, the Congressional Budget Office forecasts. While the newly enacted legislation would save more than $1 trillion by cutting federal spending on health care — with the majority coming from Medicaid — CBO predicts that the package’s costs will far outweigh its savings.

The bulk of the red ink from the package comes from the GOP’s permanent extension of Trump’s 2017 tax cuts. The analysis finds that the Senate Finance Committee, which has jurisdiction over tax policy, enacted policies that would decrease the incoming federal cash flow from taxes by a total of $4.5 trillion. That sum includes the cost of tax cuts Republicans added during Senate floor debate of the package.

Read the rest here.

The Dangerous Mythology of Central Banks (and out of control debt)

...Trump has purged the top echelons of the US military, the CIA, the NSA, the FBI, the justice department and every agency that stands in his way. It would be out of character if he spared the Fed.

His war of words against Powell is in full flight: “Low IQ ... a very stupid person, actually … terrible … a major loser … Mr too late ... a total and complete moron.”

Needless to say, Trump’s determination to get his hands on the machinery of interest rates and bond purchases is an admission that his “big, beautiful bill” is pushing the limits of US debt sustainability.

The Congressional Budget Office (CBO) says the draft will add $3.3 trillion (£2.4 trillion) to deficits by 2034, mostly from rolling over the Trump 1.0 tax cuts that were never affordable in the first place.

The US is in a runaway debt compound trap. The budget deficit is 6.7pc of GDP at full employment. The next recession will push it into double digits.

Interest costs were 1.6pc of GDP in 2018, during those halcyon days of free global money. They are 3.2pc this year and rising fast. “The federal budget has become highly sensitive to interest rate dynamics,” said James Knightley, from ING.

The US is also about to breach the Niall Ferguson rule: that great powers go into terminal decline once interest costs exceed military spending as a share of GDP.

Net public debt was 54pc of GDP at the turn of the century. It is now 121pc, rising by two points a year even in good times, and heading for 140pc in short order.

Read the rest here.

See also...

Republican Bill Puts Nation on New, More Perilous Fiscal Path

Trump Launches Trade War with China, Mexico & Canada (JP Morgan Chase Stockpiles Gold)

President Donald Trump has signed tariffs on goods coming into the U.S. from Canada, Mexico and China, the White House said Saturday, raising the risk of a trade war with America’s closest trading partners and threatening to drive up prices on everything from cars to avocados.

It is unclear when the tariffs will take effect.

Canadian energy products would have a lower tariff rate of 10%.

Trump said he was imposing the tariffs because he claimed the countries were allowing fentanyl to come into the U.S. More than 107,000 people died from drug overdose in 2023, with nearly 70% of those deaths from opioids, including fentanyl. Trump also said the tariffs were in response to a trade deficit between the U.S. and the three countries because the U.S. imports more from them than it exports.

Economists across the political spectrum expect tariffs to increase what consumers pay for a range of goods, including vehicles, electronics, produce and lumber. Tariffs are paid by companies importing goods into the U.S., similar to a tax.

Read the rest here

Meanwhile, JP Morgan Chase is airlifting $4 billion in gold bullion to its New York vaults.

Even Progressives are Starting to Worry About the Debt

The 119th Congress began, as it so often has in recent years, with calls from Republican politicians for wrestling down the national debt, which is near a record level relative to the size of the economy.

But this time, the G.O.P. had company: Progressive economists and budget wonks, who have often dismissed finger-wagging about debt levels as a pretext for slashing spending on programs for the poor, are starting to ring alarm bells as well.

What’s changed? In large part, long-term interest rates look unlikely to recede as quickly as had been hoped, forcing the federal government to make larger interest payments. And the Trump administration has promised to extend and expand its 2017 tax cuts, which will cost trillions if not matched by spending reductions.

“I find it easier to stay calm about this threat when I think the interest rate is low and steady, and I think in the past year or so that steadiness has been dented,” said Jared Bernstein, who led the Council of Economic Advisers in the Biden administration. “If one party refuses to raise revenues, and the Democrats go along more than is fiscally healthy, that’s also a big part of the problem.”

To be clear, conservative warnings on the debt have generally been met with little action over the past two decades. A paper by two political scientists and an economist recently concluded that after at least trying to constrain borrowing in the 1980s and 1990s, Republicans have “given up the pretense” of meaningful deficit reduction. Democrats and Republicans alike tend to express more concerns about fiscal responsibility when their party is out of power.

Read the rest here.

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." 

What's Wrong with Chicago?

The word bankruptcy has been hanging over Chicago like a storm cloud about to burst. Mayor Brandon Johnson is the latest leader to attempt to close Chicago’s gaping fiscal gap: He proposed a $300 million property tax increase to partly fill Chicago’s $982 million projected budget deficit, only to be unanimously rejected by the City Council. The City Council narrowly passed a budget on Dec. 16, with far less in tax increases than the mayor had initially demanded.

The Windy City’s woes are the product of decades of fiscal profligacy and a cautionary tale to policymakers in every region and at every level of government: Retirement benefits are like free junk food to politicians — everyone loves them, and the bills don’t arrive until later. They can be ruinous for a city’s long-term fiscal health.

At the heart of Chicago’s deficit are decades of increasingly generous retirement benefits offered by Chicago’s leaders to more than 30,000 public employees, a politically powerful constituency. Today, a city employee retiring after 35 years with a final salary of $75,000 would receive combined pension and retiree health benefits of about $77,000.

The City government has failed to fund those pension promises fully and the bill has come due. Retirement benefits and debt service together made up 43 percent of Chicago’s budget in 2022, the highest rate of any U.S. city. Chicago spends more on debt and pensions than it does on the police and infrastructure, according to an analysis from the Illinois Policy Institute, a libertarian-leaning policy group. In other words, Chicago is paying for the past, not investing for the future.

Chicago’s pension actuary warned in a letter to the plan’s leadership last year that “the Fund is still at risk of potential insolvency if an economic recession or investment market downturn were to occur in the near term.” (He wrote it in boldface to get policymakers to take notice.)

Read the rest here.

Chicago is basically spending money like the Federal Government. This country is drowning in debt at every level of government and that is not sustainable. For most of the last quarter century the spending habits of our political leadership (from both parties) can be summed up as; "If you've got it, spend it. And if you don't have it, spend it anyways." A reckoning is coming, and it's a lot closer than it was ten or fifteen years ago.

Worth noting; the bond market is flashing warning signs. Despite two successive rate cuts by the Federal Reserve, interest rates on bonds, have been rising. Wall Street is getting nervous about all the red ink.

Study: Half of states running business on debt

According to the study, 18 states are running very high levels of debt as measured by money owed per taxpayer to cover the state's fiscal obligations ($5,000+). Four of those states are running extremely high levels of debt at $20,000+ per taxpayer. 

Read the full report here (pdf).

Paul Tudor Jones sees fast approaching reckoning over US debt levels

Billionaire hedge fund manager Paul Tudor Jones is raising alarms about the U.S. government’s current fiscal deficit and the increased spending promised by both presidential candidates, saying the bond market may force the government’s hand after the election in addressing it. 

“We are going to be broke really quickly unless we get serious about dealing with our spending issues,” Jones told CNBC’s Andrew Ross Sorkin on Tuesday.

Read the rest here.

I tend to agree. No matter who wins, their spending plans are going to spike the national debt. Trump's are worse, by far. But the next four years, and possibly beyond, are going to be a bumpy ride. A quarter century of bipartisan fiscal profligacy may finally be reaching its inevitable end. 

Trump tax plans could exempt 93 million from income taxes

Former President Donald Trump’s tax reform ideas could offer total or partial income tax exemptions to roughly 93.2 million Americans, a meaningful chunk of the U.S. electorate, according to CNBC’s analysis of several estimates.

As part of his economic pitch to voters, Trump has floated a sweeping tax overhaul, including a slate of income tax breaks.

So far, the Republican presidential nominee has officially proposed eliminating income tax on tips and Social Security benefits, along with overtime pay. And last week, in an interview on the sports media site OutKick, Trump said he would consider tax exemptions for firefighters, police officers, military personnel and veterans.

These exemptions are part of Trump’s larger vision to transition away from the income tax system and replace it with the revenue he says would be generated by his hardline tariff proposals.

“In the old days when we were smart, when we were a smart country, in the 1890s and all, this is when the country was relatively the richest it ever was. It had all tariffs. It didn’t have an income tax,” Trump said at a sit-down with voters in New York on Friday for “Fox & Friends.” “Now we have income taxes, and we have people that are dying.”

Trump has pledged to impose a 20% universal tariff on all imports from all countries with a specific 60% rate for Chinese imports.

Tax experts reject the notion that tariff revenue could offset the losses incurred by eliminating income taxes.

“The math doesn’t work out,” Garrett Watson, a senior policy analyst at the nonpartisan Tax Foundation, told CNBC.

He said Trump’s tariffs would raise approximately $3.8 trillion over the next decade, far less than the roughly $33 trillion of estimated revenue generated by income taxes over the same period.

Given that tariffs are paid by U.S. importers and those costs have historically been passed on to consumers, Trump’s strategy appears to be based around a notion of replacing income tax revenue with a kind of invisible sales tax.

Tariffs, much like sales tax and other point-of-sale costs, tend to have the biggest impact on low-income consumers, for whom the amounts represent proportionately larger slices of their monthly budgets.

If implemented, Trump’s income tax exemptions could affect tens of millions of taxpayers.

Roughly 68 million Americans receive Social Security benefits each month, according to the Social Security Administration. And in 2023, about 4 million workers were in tipped jobs, according to an estimate from Yale University’s Budget Lab.

The U.S. Department of Veterans Affairs approximated in March 2023 that there were 18.6 million living veterans. There are 1.3 million active-duty military personnel, according to the Department of Defense. And there are 800,000 sworn law enforcement officers and roughly 500,000 paid firefighters.

Taken together, these reforms could leave about 93.2 million people off the hook for at least a portion, if not all, of their income taxes.

That accounts for about 38% of the 244 million Americans eligible to vote in 2024.

Read the rest here.

Trump's economic plan in summary: Eliminate income tax for most people, levy a 20%+ tariff (sales tax) on all imports which will start a trade war with pretty much the entire word and replace about 10% of the lost tax revenue in the best case scenario, precipitating an explosion in inflation and the national debt.

On which note, gold is currently trading at ~$2,745.00/oz. 

Is gold safer than U.S. Treasury bonds as federal debt keeps soaring?

Backed by the full faith and credit of the federal government, U.S. Treasuries bonds have long been viewed as the gold standard in safe investments.

In times of uncertainty, economic downturns, or full-blown crises, investors have flocked to Treasuries as a haven. But what if actual gold is the new gold standard for a safe investment?

Analysts at Bank of America asked that question in a note on Wednesday, explaining that the outlook for U.S. debt is bullish for the precious metal.

With debt as a share of GDP set to break record highs in the coming years, the Treasury Department has to sell more and more bonds to investors, who may demand higher yields. And when yields rise, the price of bonds on the secondary market falls.

That has helped weaken the historic correlation between bond yields and gold prices. While lower rates are still bullish for gold, which doesn't pay interest or dividends, higher rates don't necessarily put pressure on bullion anymore, BofA said, maintaining a gold price target of $3,000 per ounce.

"Indeed, with lingering concerns over US funding needs and their impact on the US Treasury market, the yellow metal may become the ultimate perceived safe haven asset," analysts wrote.

Gold has been on a tear recently, with prices up more than 30% so far this year, topping $2,700 per ounce for the first time ever this past week.

That's even as bond yields have rebounded since the Federal Reserve's first rate cut last month, while fresh budget data showed that the deficit was $1.8 trillion for the fiscal year that ended on Sept. 30. Meanwhile, the interest expense alone on U.S. debt was $950 billion, more than defense spending and up 35% from the prior due mostly to higher rates.

There is no relief in sight as the deficit will expand under either Donald Trump or Kamala Harris, though less so under the Democrat, according to the Penn Wharton Budget Model and the Committee for a Responsible Federal Budget.

"Indeed, rising funding needs, debt servicing costs and concerns over the sustainability of fiscal policy may well mean that gold prices could increase, if rates move up," BofA said.

With the supply of U.S. debt poised to continue surging, concerns have grown about demand and whether investors will keep absorbing more Treasury bonds.

That provides a strong incentive to central banks around the world keep diversifying their reserves away from U.S. debt and toward gold, BofA added.

Read the rest here.

The Debt Delusion: Why Modern Monetary Theory Is a Luxury Belief

While Fed Chair Jerome Powell made the rounds on Capitol Hill this week, discussions about the Federal Reserve’s expectations for inflation have once again come to the forefront. Unsustainable government spending is raising inflationary pressures with potentially devastating consequences for the US economy. In this context, the belief that debt doesn’t matter, especially championed by proponents of Modern Monetary Theory (MMT), appears more detached from reality than ever.

This notion, prevalent on the political left, claims that a government that issues its own currency can never run out of money in the same way a household or business might. Advocates argue that such a government can always print more money to pay off its debts, thereby sidestepping any constraints imposed by traditional fiscal discipline. While this might sound appealing, it’s a classic example of what sociologists call a “luxury belief”—an idea that is primarily held by those insulated from its real-world consequences.

“We are a sovereign currency, we can print all the money we want”—former House Budget Committee Chair John Yarmuth (D‑KY) at a congressional hearing.

Luxury beliefs, as sociologist Rob Henderson describes, are ideas that confer status on the rich while often burdening the less fortunate. The concept has traditionally been associated with cultural and social norms, but it applies equally well to economic theories like MMT. Proponents of this “magic money” theory, often shielded by their own economic stability, pay too little heed to how elegant theories on paper can lead to catastrophic outcomes in the real world.

A key argument against MMT’s false promise is that printing money for the sake of financing government spending leads to inflation. When a government prints money to cover excessive spending, it increases the money supply without a corresponding increase in goods and services. This creates an imbalance between available resources and the money available to purchase them, with the result being inflation—an increase in the price level that erodes the purchasing power of money. For the wealthy, this might mean adjustments to their investment portfolios or higher prices on certain items. For the poor and working class, however, inflation can be devastating.

Read the rest here.

The U.S. national debt is rising by $1 trillion about every 100 days

The debt load of the U.S. is growing at a quicker clip in recent months, increasing about $1 trillion nearly every 100 days.

The nation’s debt permanently crossed over to $34 trillion on Jan. 4, after briefly crossing the mark on Dec. 29, according to data from the U.S. Department of the Treasury. It reached $33 trillion on Sept. 15, 2023, and $32 trillion on June 15, 2023, hitting this accelerated pace. Before that, the $1 trillion move higher from $31 trillion took about eight months.

U.S. debt, which is the amount of money the federal government borrows to cover operating expenses, now stands at nearly $34.4 billion, as of Wednesday. Bank of America investment strategist Michael Hartnett believes the 100-day pattern will remain intact with the move from $34 trillion to $35 trillion.

Read the rest here.

Jamie Dimon sounds the alarm over US debt

Jamie Dimon, the chairman and CEO of JPMorgan Chase, recently painted a rather gloomy picture for the U.S. economy, likening the nation’s escalating debt to a high-speed drive toward a cliff. During a panel at the Bipartisan Policy Center, Dimon didn’t mince words about the dire consequences if the federal government fails to address this burgeoning issue.

Reflecting on the economy’s state back in 1982, with soaring inflation and unemployment rates juxtaposed against a significantly lower debt-to-GDP ratio, Dimon pointed out the stark difference with today’s scenario. Currently, the U.S. debt-to-GDP ratio stands over 100% and is projected to balloon to 130% by 2035. Dimon vividly described this as a ‘hockey stick’ moment on the horizon, a point of no return where global markets, heavily invested in U.S. debt, might revolt.

Joining Dimon in this grim forecast was former House Speaker Paul Ryan, who dubbed the snowballing debt “the most predictable crisis we’ve ever had.” The Congressional Budget Office’s latest findings only add to this bleak outlook, predicting the national debt to nearly double over the next three decades. By 2053, the debt could reach a staggering 181% of the GDP, a level unprecedented in U.S. history.

Dimon, known for his straight talk, suggested a solution that might raise a few eyebrows: taxing the rich more. At the same discussion, he emphasized the need for increased financial support for low-income populations. Advocating for an expansion of the Earned Income Tax Credit (EITC) and the Child Tax Credit, Dimon proposed funding these initiatives by increasing taxes on wealthier Americans.

Read the rest here.