Trump Has One Weakness
Introduction
I have been a strong defender of Trump over the past three years. I am also a supporter of most of his policies. He and his administration have done more than expected in a divided country with a divided Congress. The accomplishments are stellar and unprecedented in modern history. However, there is one weakness. This is inexplicable in light of the booming economy. I am referring to the rising debt. In a time when the IRS is raking in record revenues, why are we still spending more than we take in? This is just insanity.
I hope someone from the Trump administration will address this in the upcoming debate. Someone with financial credibility needs to explain in simple terms why we are increasing our debt.
The math is very simple. The justification behind it is hard.
Congress does play a role of course. In our system, the House of Representatives hold the purse string. Spending bills are passed in the House. The President does have veto power. It is inexplicable why Trump is going along with the deficit spending year after year.
Tied to this is also the Federal Reserve. It is suppose to be an independent agency. It is suppose to set interest rates targets that is conducive to a stable economic growth. However, it is being influenced by the administration in power. First, under President Obama, it was kept artificially low to help us out of the recession of 2008. It kept it low so Obama could borrow money at very little cost to fund his social spending programs. This was not a normal recovery. It lead to the doubling of our debt.
Now, under Trump, the interest rate has risen slowly to about 2%, still very low by historical standards. Why is it kept so low despite a booming economy?
The answer is obvious. The government owes so much money that any rise in interest rate will mean more money spent to service that debt.
- Feb. 2020
The National Debt
It was $10 trillion at the end of the Bush Administration. It doubled to $20 trillion under the 8 years of the Obama administration. Now, it is over $23 trillion in 2020 and rising at the same rate with no end in sight. This is unsustainable.
It was understandable to have a deficit during a recession. Revenue usually drops and taxes revenues are lower while spending on social programs are rising. That is the way it suppose to work. The government acts as a stabilizing force to guide the economy in times of recession.
Now that we are in an economic boom, there is no reason why the government needs to continue to deficit spend. In fact, just the opposite. In times of boom, the tax revenue is high as more people are working. Less people are collecting unemployment and relying on food stamps and other social programs to make ends meet. The net balance should lead to a surplus.
Yet, we see spending rising even faster at the National level. Why?
National Debt Clock - April 1, 2020
Trump and His Economic Advisors Has to Explain It
This is the one weakness I see with a Trump administration going forward. Despite the boom in the market and the good economic indicators, the underlying economic health of the nation cannot be ignored.
The key to solving this dilemma is the Federal Reserve. It needs to adjust the interest rate to a "normal" level. Once that happens, and money is re-adjusted to a "real" value. Which means money has a cost. If you borrow money, you need to pay it back at a higher rate. This was the history of money since the start of the industrial revolution. We have banks which lend out money and expect a higher rate of return. It applies to credit card debt, auto loans and house mortgages.
When our government borrow money, it must pay it back at a reasonable rate. When the interest rate was artificially set to zero, that was the start of our problem. It is essentially making money "free". That is to say, you can borrow money without paying a cost. This allowed our government to increase its debt without any downside. Unfortunately, it cannot last. At some point, the interest rate must rise.
The government must explain why it cannot pay off this debt or reduce it during economic boom.
Summary
This article is non-Political. It is stating a fact of life. Regardless which party is in power, the economics does not change. When you borrow, you need to pay it back with interest. The higher the interest rate, the more expensive it is to pay off.
We are living on borrowed time. A $23 trillion debt and increasing is a guaranteed path to disaster. The problem will most likely show up at the next economic down turn. When the next recession hit, we will have to pay the price.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2020 Jack Lee
Related
Comments
Well that’s the thing, if he has 4 more years and control of both houses of Congress he can cut spending - he couldn’t yet because he needed to get through Congress what he could on his other promises.
Like the idiots on hp who just keep parroting the talking point “he didn’t make Mexico pay for the wall”
He never said Mexico would cut a check. I believe after another four years and after the wall has been finished we will be able to see just how Mexico was made to pay through Trump’s policies.
- AUTHOR
T, I can't argue with what you said. Why Trump does not cut spending as he promised to do? That would make it unstoppable in 2020, and perhaps years to come.
“... because it does not know parties.”
? How does that make it a weakness for Trump?
You mean his opponent will criticize him for increasing our debt while at the same time his opponent is advocating to increase it astronomically more?
That makes no sense. If he had an opponent with a plan to reduce the debt then you might think he has a weakness but everyone knows if a Democrat proposed reducing the debt that would be a lie anyway!
Trump’s only weakness is that nearly half the electorate are uninformed propagandized Democrats who don’t have a clue about what makes America great. His weakness only lies in the possibility of these losers making it to the polls and voting for promises of free stuff.
But they won’t.
- AUTHOR
T, good question. The reason the debt is a weakness is because it does not know parties. Whether a Democrat or Republican in office, at some point, the burden will be come too great to bear. It could come sooner rather than later depending on the Federal Reserve. It they raise the interest rate to 3 or 4% the way it was, our deficits will sky rocket. The baby boomers will also create a bubble in the payout to social security. The deficit spending is unsustainable.
Jack, does it surprise you that all Trump haters can do is parrot talking points with absolutely nothing of substance to back them up?
It doesn’t surprise me, as a matter of fact I could have predicted it.
And btw, how is the debt any more of a weakness to Trump than his opponents? they all want to double or triple it!
- AUTHOR
john, you are entitled to your opinion but that does not make it true.
Where is the evidence?
Trump is the President duly elected by our democratic process.
point 1 - He is no dictator.
Point 2 - The Republican party has many never Trumpers. Senator Mitt Romney is one prominent example...
point 3 - Russian collusion has been disproven by the Mueller investigation. Trump is his own man. MAGA is just that. Why does he need Putin? Makes no sense except in the mind of A biased media.
point 4 - TDS is alive and well. A real condition and some of them are in the media and in DC and apparently here on HubPages.
Hi Jack--
Just to name four of Trump's many flaws:
1. He's destroying American democracy. He wants toi be a dictator.
2. He's turned the Republican Party into the Party of Trump.
3. He's Putin's Puppet. Always does Putin's bidding.
4. The definition of a Psychopath is a person that has no empathy. If Trump hasn't crossed that red line, he's mighty close.
- AUTHOR
marie, I hope you are not relying only on social security in your retirement. I was told very early in my career that your retirement fund should be built on three pillars, Social Security, Private pensions and personal savings. The reason was SS was unsustainable in its current form. It is a shame that our public schools do not teach basic financial planning. If they did, our electorate will be better informed and would hold our elected officials accountable for spending our money.
I don't claim to be financially literate, but these figures are outrageous. I happen to be living on Social Security and a part state pension. I'm certainly not a big spender. What I do notice is that the quality of products seems to be declining. Even plastic grocery bags tear easier than when they were first introduced at produce retailers. Ladies' blouses look and feel like cheesecloth, another reason to buy second-hand.
If we have an economic recession, I plan to have a greenhouse and a garden with solar or other alternative energy source. I follow the Tiny House and alternative built homes movements.
I like the idea of the Lemurians living in the fifth dimension without military, doctors, or money to a life expectancy of 1,000 years. Crazy, yes, but that's my 2¢ worth.
- AUTHOR
John, you are welcome to disagree. I have lay out the facts. What other weakness does Trump have? I don't see it. He is winning on the economy overall. He is winning at home. He is winning in trade agreements. He is winning over the World bodies. The only people not supporting him are Democrat extremists. They are the socialist crowd under Bernie Sanders and AOC...They have little chance of beating Trump in 2020.
Hi Jack--
How can this article not be considered "political" with your claim that Trump has only this one "weakness" or flaw? I could go one for pages describing Trump's weaknesses and flaws. But I won't.
All the best,
John
I agree the debt is unsustainable if the debt gets much higher even tax cuts won't help much because investors know that the debt burden will eventually cancel out the gains made by cutting taxes.
I can understand the predicament here, many Americans are in denial about the debt crisis and don't want to hear about cutting entitlement spending but that precisely what needs to happen.
Social Security, Medicare, and military spending are the main drivers of unsustainable debt and must be there has to be some significant cuts or we're headed for disaster.
Well Jack, can anyone explain why the stock market isn’t concerned about the government debt?
I can. It is totally manipulated.
The problem is, even with the debt at a lofty $21 trillion, we could still pull back from the brink by cutting long-term spending. But soon, we won't have that luxury. The Congressional Budget Office's most-likely scenario estimates that the debt will grow from $21 trillion today to $98 trillion by 2048. No, that's not a misprint.
"The numbers are really terrifying," said Brian M. Riedl, a senior fellow at the Manhattan Institute, speaking at a Heritage Foundation debt forum last year. By the way, Riedl reminds us that the $98 trillion number is "the rosy scenario. That assumes no wars, no terrorist attacks, no recessions, and that interest rates stay low."
And what are the chances of that?
One is left wondering: How did things get so bad? I know you don’t like to hear it Jack, why I can’t imagine, but Soaring Entitlements Is the answer, runaway entitlement spending. We've put Social Security and Medicare on automatic pilot. They go up every year, with a cost of living increase already baked into the budget cake. Today, the population over age 65 is about 16% of the total. But by 2048, it will be 22%. So entitlements will relentlessly drive U.S. federal spending up sharply, if Congress does nothing.
Economists agree: We don't have the luxury to wait.
While we only "owe" $21 trillion, our promises to future retirees total more than $60 trillion, without the current means to pay them. That’s called in funded liabilities and it spells disaster for the economy!
Not only will the debt grow bigger, but the interest on the debt will grow, too, faster even than the debt itself. The Federal Reserve kept interest rates at close to zero for nearly a decade, but now is raising them back to "neutral" — which means higher interest rates.
Read it and weep:
investors.com/politics/national-debt-economy-taxes/
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