The U.S. National Debt Means Storm Clouds Ahead… Regardless Of Who Is President

Donald Trump has big dreams for America. God bless him for that. But can he actually pull them off? No one has a crystal ball, so instead, we look at patterns from the past to try and predict what might happen. And if history has any clues, Trump’s plans could face some very real roadblocks. Despite the debt troubles, you have to love the vision, and the can-do optimism:

“I will not rest until we have delivered the strong, safe and prosperous America that our children deserve and that you deserve,” said Donald Trump in his victory speech. “This will truly be the golden age of America. That’s what we have to have. This is a magnificent victory for the American people that will allow us to make America great again.“  President Trump

Okay, imagine the government as a family that spends a lot of money every year. Right now, this family has some massive bills. The problem is, this family is going to need about $2 trillion every year just to keep things running for the next four years. On top of that, they already owe so much in loans that they’re paying $1 trillion a year just on interest, like trying to pay off a huge credit card bill. A nightmare, right? And… each year, they must renew or “refinance” another $4 trillion in debt. That’s a lot of money flying out the door to keep the ship from sinking.

Elon Musk To The Rescue?

Elon Musk, a brilliant tech whiz who’s used to dealing with big numbers, could probably tell you that cutting $2 trillion from the government’s budget is like trying to slice through solid granite with a butter knife. Further,  if the President thinks he’ll find all that extra money by cutting “waste” from government spending, he may be a bit too optimistic. Maybe, like thinking you can pay off your credit card bill by skipping dessert each night, except that it’s too little, too late when you factor in the interest on your card.

Here’s the other catch: Trump has promised not to cut some of the most significant parts of the government’s “budget pie” … like military spending, Social Security, and Medicare. These “meaty” pieces take up most of the plate. So, if we’re talking about trimming the budget, only a tiny slice — about 18% — is even available to cut. And even if he slashed all that, he’d still be about $1 trillion short of his needs.

It’s like looking at your grocery bill and realizing you’re still way over budget, even if you don’t buy steak and lobster. But that’s not all. He also wants to give tax breaks to many people… like veterans, Social Security recipients, first responders, and more. If these tax breaks go through, it could mean a significant loss for the government: around $11.5 trillion over the next 10 years, losing one-third of its income.

Taxes And Tariffs On Imports?

The President has a new idea to make up for this missing money. He plans to tax and impose tariffs on imports… a 20% tax on many goods coming into the country and an even bigger tax, 60%, on goods from China. This import tax is like putting tolls on the highway for goods entering the country. But just like tolls make road trips more expensive for drivers, these taxes would make things pricier for shoppers. Stroll through Walmart someday and imagine everything costing between 20% and 60% more. Stores would have to charge even more to make up for the extra costs, so families would feel it every time they shop.

These taxes might make people think twice about spending. Instead, they could start saving money, like putting gas in the economy’s tank for the long haul. Heck, maybe that’s a good thing. However, the problem is that Trump and his team only have four years to make things happen. Any changes they make could get mixed up, rewritten, or slowed down by Congress and all the other “swamp creatures” in Washington who want special deals and exceptions.

A Formula For The Next Great Depression?

To add another twist, the last time the U.S. tried something like this with taxes on imports was back in the Great Depression of the 1930s. Two Congressmen, Smoot and Hawley, pushed through a law that taxed imports, thinking it would help American businesses. But it didn’t work out that way. Other countries responded by putting their own tariffs on American goods, and soon, global trade shrank by 67%. Read that again!  It was like the world had stopped shopping, making the Depression much, much worse.

Even if things don’t get that drastic, Trump’s import tax still wouldn’t cover the massive hole in the budget. Right now, it might bring in about $9 trillion over 10 years, which still leaves a shortfall of about $2.5 trillion. And as people buy fewer imports, that tax money would dry up, too. So, the debt would continue to grow, reaching over $50 trillion by 2034.

Here’s where things get even more challenging. Unlike Trump’s first term, borrowing more money now comes with a much higher price tag. It’s a bit like borrowing when interest rates are sky-high… every dollar borrowed costs more in return. Back then, interest rates were low, so the government could borrow and spend without breaking the bank. However, things changed in 2020 when inflation and interest rates shot up, making borrowing expensive again.

Return Of The Bond Vigilantes

Now,  some investors… known as “bond vigilantes,” … are back in the game and watching markets closely. They were quiet in Trump’s first term, but now they’re on high alert. They’re demanding higher interest rates to protect against inflation, knowing they could lose money on government bonds if inflation eats away at their value. Higher rates mean the government has to pay even more to borrow money, which could slow down the economy and push the administration to make tough decisions.

So, the million-dollar question: Will Trump’s big promises hold up against these towering challenges? Who knows, only time. But if history is any guide, we have a roller-coaster ride ahead of us.

Books for Further Reading

1. “Debt: The First 5,000 Years” by David Graeber

• A look at how debt has shaped societies worldwide.

2. “The Great Depression: America 1929-1941” by Robert S. McElvaine

• A comprehensive account of what led to and followed the Great Depression.

3. “The Shock Doctrine: The Rise of Disaster Capitalism” by Naomi Klein

• A look at how economic crises can lead to sweeping policy changes.

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