The new Trump administration is moving as quickly as possible to cut government spending and increase government revenues:
• Many new tariffs are being introduced to decrease the trade deficit while increasing government revenues.
• Efforts are being made to get NATO members to pay more for US-made weapons.
• Federal departments are being audited (USAID has been slaughtered already; other departments are queueing up in front of the abatoir) looking for corruption, money laundering and waste.
• Thousands of federal workers have been given a generous incentive to resign voluntarily while quite a few others have been sacked already.
• The US will no longer be supporting the former Ukraine, will not introduce troops into the former Ukrainian territory, will not live to its mutual defense commitments under Chapter 5 of NATO charter and will do its best to end its failed proxy war against Russia. There is still talk of "containing China" but it is unlikely to amount to much more than some new tariffs which China can shrug off (US trade is by now a mere 5% of China's total).
As with most things American, the rationale behind these desperate measures has to do with money: the US federal government is running out of it. The problem is not so much long-term debt as short-term debt, which needs to be rolled over immediately, coupled with the overall trend of stagnant revenues and ballooning budget deficit. Revenues since the beginning of the fiscal year (October through January) came to $1.596 trillion, and while that's nominally higher than last year's $1.584 trillion, when adjusted for inflation it is actually a decrease.
Meanwhile, spending is growing by leaps and bounds, amounting to $2.435 trillion since the start of the fiscal year against $2.116 trillion a year ago.
Over the past 12 months, revenue came to $4.929 trillion while spending came to $7.064 trillion — that's a budget deficit of 43%. The point at which the US governments spends twice as much as it earns and borrows the rest is within sight! Meanwhile, over the past 12 months it has spent 23.6% of the total on interest payments. The point at which a quarter of all spending is on interest payments will be reached soon!
The relentless rise in US federal debt level, which has blown past $36.22 trillion, can be allegorically compared to the rising sea level along the Eastern Seaboard of the US caused, some say, by a slowing of the Gulf Stream: there is some coastal inundation, storm surges become more severe and in places beach erosion is undermining the foundations of stately mansions that dot the coast. At this rate, the sea level can keep rising for another generation or two, causing many billions in damage to the properties of people who had splurged on a vacation home with a sea view. This, metaphorically, is the effect of long-term debt.
Short-term debt is rather different and a more apt metaphor for it is a tsunami. Consider: the short-term portion of US federal debt has grown to over $9.47 trillion while interest payments on the federal debt have reached $1.16 trillion a year and have exceeded the amount spent on national defense. That is, the amount of debt to be rolled over (by issuing new debt instruments) over the next 12 months new comes to $9.476 trillion, which is equivalent to the total federal revenues of the US over 23.1 months.
This debt tsunami is growing higher and higher: in 2019 the amount to be rolled over was $4.297 trillion, which is only half as much.
Meanwhile, the federal debt ceiling has been breached again, and the plan is to raise it by $4 trillion, making the US Treasury to continue making payments. This is the quintessential function of the US federal government: if it stops making payments on which half of the US households depend, the USA will effectively cease to exist as a unified state and will disintegrate as each state stops sending money to Washington and tries to take care of its own.
What is being done to avert this scenario? The current plan is to cut spending by $1.5 trillion and to reduce it... wait for it... by a whole $2 trillion over a 10-year period! Nobody in their right mind would ever think that this would be sufficient.
But then there is the short-term problem: borrowing another $4 trillion over the next year while rolling over close to $10 trillion in short-term debt. Interest payments will exceed a quarter of all federal spending. Trump's new tariffs may add a little something to federal revenues but will also drive up dollar inflation. In turn, interest rates will have to rise to compensate.
What happens when a tsunami reaches the shore? Typically, panic ensues. Some people run for higher ground while others drown or are swept out to sea on bits of wreckage. A debt tsunami is different because the substance in question is different: water is physical while money is a mental construct that has no physical reality at all.
Another difference is that the level of panic on the shore has no effect on the level of a tsunami that strikes it whereas a financial panic is the key ingredient that makes a debt tsunami more than a mere metaphor.
But the fact remains: neither Musk's extraordinary efforts to cut waste and fraud, nor Trump's efforts to cut trade deficits and boost revenues by imposing tariffs, and certainly not the plan to cut $1.5 trillion in spending while authorizing $4 trillion in new borrowing currently winding its way through the various committees in the US House of Representatives, are likely to materially affect the eventual outcome when financial panic finally arrives.
https://boosty.to/cluborlov/posts/285ba7eb-5a7e-4f78-a102-21948b554073