Good afternoon all. Sharing a just completed interview with our good friend, economist and Under Secretary of Commerce, Dr. Rob Shapiro. Rob joined us to discuss his new essay in the Washington Monthly “Trump’s Budget Could Break The Economy.” A recording and transcript are above.
In his article Rob writes:
President Donald Trump is charting a course that may end in the economy’s third meltdown in less than 20 years. Whatever he and his economic courtiers think they’re doing, the waves of unprecedented budget deficits now under his One Big Beautiful Bill Act and his tariff war could trigger a grave economic crisis that will recall the Financial Crisis and the pandemic.
In this article and in our conversation it will be become clear that Trump’s economic agenda is reckless and could bring extraordinary and lasting harm to the country. It is creating huge, unsustainable and dangerous deficits. The enormous tariffs he is levying - illegally and unconstitutionally - against every country will cause prices to keep rising here, inflation to re-ignite, interest rates to remain high, our economies to slow and generate unprecedented ill-will against America throughout the world. It is shifting the tax burden from the rich to the middle and working class. It is weakening our health care system and destroying our global scientific leadership. It is giving other nations unacceptable leverage over our country, and weakening our competitiveness. It represents a remarkable betrayal of everything Trump promised during the campaign. It has also become incredibly unpopular even before its most negative impacts are felt.
As we discussed in this morning’s Hopium post we are now learning, incredibly, that Trump’s new trade “deals” with foreign nations will actually increase the 10% tariff rate he has already put in place to at least 15%. Yes, Trump’s big strategy after seeing the damage the tariffs have already done is to INCREASE them and drive prices and inflation even higher here in America.
Here’s a reminder of how unpopular Trump’s handling of inflation and prices already is:
Here’s a summary of Rob’s main points from our talk today:
Deficits
· Trump’s deficits are outliers for peacetime: CBO reports that his Big Bad Bill will produce deficits equal to 7% of GDP annually for the next five years, vs 2.1% in the 1990s, 1.5% 2000 to 2007, and 3.6% from 2012 to 2019.
· All private savings from households and businesses that have to fund Trump’s deficits and all new business investments, mortgages, auto and other loans now averages 7.7% of GDP.
· That’s far from enough, so we’re now dependent as never before on foreign governments and foreign investors lending us their savings by investing in Treasuries, corporate bonds, and stocks.
· These foreign creditors are all in countries subject to Trump’s tariffs, and they may strike back by sharply slowing or halting their lending. If they do, interest rates will rise sharply and, if they continue to do that for any period, we will face our third economic crisis in 18 years.
· Even if they maintain their and investments to us, U.S. interest rates for everything will increase, slowing growth, employment, and incomes—which in turn will further increase deficits absolutely and as a share of GDP.
Tariffs
· Before Trump, US tariffs on all imports averaged 2%. Under Trump’s program, the average rises to at least 15%.
· With imports last year of $3.3 trillion and a new Atlanta Fed survey finding that companies plan to pass along to consumers half what they pay in tariffs, consumers’ annual tariff-related costs will reach $250 billion under 15% tariffs.
· $250 billion = 1.3% of all consumer spending, so Trump’s tariffs should raise inflation from 2.7% to 4.0% in the first year, which also will raise interest rates and slow the economy.
At one point in our discussion I reflected that laying all this out there was like realizing the captain had decided to steer the Titatic towards the iceberg. Rob corrected me and said it was perhaps more accurate to say that the captain - madman Trump in this case - didn’t know the iceberg was even there.
What are we to do? We will be discussing that in the coming days but it starts with aggressively explaining to the American people what our Mad leader is doing to the country. And that is what this discussion and post is about today…..
Heads down, keep working hard all - Simon
Share this post