US Treasury Department, Washington DC
"Scott Bessent's Big, Beautiful, Budget Abomination"
by Bill Bonner
"We are going to have to have some kind of a grand global
economic reordering.I'd like to be a part of it. I've studied this."
- US Treasury Secretary Scott Bessent
Youghal, Ireland - "The die is cast. The deal is sealed. We’re on our way to national bankruptcy - whee! "Trump Wins Broad Economic Policy Shift as House Passes Tax Bill." It’s deficits as far as the eye can see...followed by money-printing, inflation, and chaos - practically guaranteed.
But wait. Scott Bessent is the ‘adult’ in the financial room. He supported John McCain. He supported Barack Obama and Hillary Clinton. Now, he supports Donald Trump. Why? What’s he up to? We don’t know, but the stated reasons for the Big, Beautiful Budget Abomination (BBBA) are nonsense. It is supposed to ‘stimulate’ the economy into producing so much growth that debt won’t matter. We’re going to see ‘growth like we’ve never seen growth before,’ says POTUS. We know that won’t work. The US economy got more stimulus in this century than ever before. But GDP growth rates are still only half those of the ‘50s and ‘60s.
We’ve already established that spending by the government decreases real wealth. Bessent must know that. And today, we’ll look at what happens when the feds try to boost GDP - by stimulating growth in the private sector.
The BBBA program is similar to Japan’s ‘Three Arrows’ scheme that went live in 2013. It was Bessent who proposed it and designed it. Japan’s three arrows were meant to stimulate the Japanese economy out of its 20-year funk. The arrows - increases in government spending, lower interest rates (more debt) and Quantitative Easing (more printing press money) - went flying in 2013. Since then, in dollar terms, Japan’s economy has lost nearly a third of its GDP.
(A little mentioned detail. Scott Bessent, now US Secretary of the Treasury, used to work as a fund manager for George Soros. In 2013, he made a big bet that the yen would go down. The trade reportedly made $1.2 billion in profit in 90 days.)
Economists wondered how Japan could continue borrowing, spending and building up the world’s biggest pile of government debt as the economy shrank. Now we know; it couldn’t. Japan faces a credit crack up. It has government debt two and a half times greater than its GDP…and the cost of borrowing is going up. Global Financial Market Review: "Japanese Bond Yields Reach 16-Year High As Global Sell-Off Intensifies."
When the feds try to stimulate the economy by spending more money (running deficits) the result is wealth destruction, not wealth creation. Resources are thrown away on unproductive, unprofitable and unwise expenses. The feds don’t know or really care whether or not their programs have real value. And even when the goals are laudable, they can’t control costs and can’t operate efficiently.
And, the more of a society’s resources that are spent on the feds’ projects, the less is left for everything else. Government borrowing in the US now ‘crowds out’ private borrowing almost completely. Private savings are about 7% of GDP; US government deficits - also around 7% of GDP - take up almost all of it.
The result is a lack of capital investment, with a general softening of useful output throughout the whole economy. Government spending doesn’t make us wealthier, even when the actual work is done by private companies. Private enterprises can deliver goods and services at a profit. No doubt, Krupp, BMW, and I.G. Farben made good money during WWII. But doing the devil’s work does not exactly make people better off, even when it is done well.
But in addition to more spending, Scott Bessant’s BBBA has two other arrows - less government regulation and lower interest rates Turning to his second arrow, lowering .barriers to output ought to boost ‘growth.’ Private industry ought to flourish, producing things people really want...at a profit. But there’s a catch.
It is already late in the empire cycle. The elites have more power than ever; they don’t want to give it up. Democrats and Republicans now both favor the ‘supply side/abundance’ creed, but only insofar as it helps them get what they want. They are not taking away regulations that free up the economy, generally.
Instead, they favor certain industries and punish others. Republicans reduce regulations on the oil industry, for example, so it can ‘drill baby drill.’ But then they want to regulate who sells oil, to whom, and at what price. Democrats say they will reduce the regulations that keep them from putting in railroads, ‘sustainable’ power plants, and “affordable housing.” But they want to tighten up rules on the environment, housing, and employment.
The Wall Street Journal illustrates how this degenerate ‘government of men,’ as opposed to a ‘government of laws,’ operates: "Trump and his advisers said they would explore new tariffs on parts used in wind turbines, and potentially slow permitting for some renewable-energy projects, according to lawmakers. The offer was aimed at placating Republicans who were angry that the Senate gave wind and solar-energy projects more time to start construction before becoming ineligible for tax credits."
In other words, the feds are still at it - central planning; they are regulating/deregulating to achieve specific outcomes, not to let ‘The People’ pursue happiness in their own way with their own money. Next week, we’ll look at the third arrow in Bessent’s Big Bet quiver – lower interest rates. Stay tuned. And Happy Fourth of July!"
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