The new administration is being handed an economy that is a ticking time bomb. To diffuse it, Trump needs to handle runaway debt and persistent.
In the last 100 days, we’ve added $1 Trillion to the national debt. And have been since around March. This is unsustainable and if all the nations who hold dollars decide to sell their dollars they will come back home. That will be highly inflationary for our economy and anybody who wants to use dollars to live.
To make 2025 great again, Trump has to do a lot of things. I don’t know if he can or how he would do the following, but if I were the American Emperor here’s what I would do:
- Lower the cost of energy by extracting more oil from the ground.
- Make bigly Federal spending cuts.
- Deregulate in a post-Chevron Deference era.
- Lower interest rates.
Energy
The cure for inflation is not deflation. Just like the cure for high blood pressure is not low blood pressure. The cure for inflation is more stuff. If there are 10 dollars and ten loaves of bread, each loaf costs a one dollar. If we print $10 more dollars we are not rich because we have $20. Now each loaf costs 2 dollars. We must grow more grain and bake more loaves.
To make more stuff, means we need more energy. Lowering the cost of energy lowers the cost of everything. This computer keyboard I’m typing on was made with plastic, delivered by truck and sold at a store with the lights on. Each and every step required oil or natural gas. Lower energy cost lower inflation by making stuff easier to make. We can bake more loaves. This translates into people taking care of the basics with less money. They can then increase consumption and investments back into the economy.
As the American Emperor I would do everything I could to lower the cost of energy.
Spending Cuts
If the Department of Government Efficiency can do half of what it says on X (formerly Twitter) than we are in for a lot of spending cuts. Keep in mind that the Department of Defense has failed 7 consecutive audits and doesn’t quite know where all of it’s $1 trillion budget goes. Upon further review, that’s true of a lot of bureaucracies. Also did you know that each government job kills 158 private sector jobs? It’s true according an Auburn University paper.
To the degree we cut spending we will show other nations we are serious about our debt and that the dollar is stable currency. We will make lower taxes feasible and allow the American citizen to invest and spend as they see fit.
Deregulation
In his first term, Trump passed 243 deregulatory actions in his first 24 months. He says he’ll do it again. However, the first time he was stymied by court cases that essentially blocked some of those actions. The good news is that the Supreme Court has baked deregulation into the cake. The Supreme Court ruled against 40 years of deference to federal agencies this summer. The Chevron Deference meant that federal agencies could make up the rules for American Industry. These were laws written by pencil pushers and not by Congress. That’s not how the Constitution reads.
This means that it’s only a matter of time until many of the regulations are overturned by court cases. In Trump’s first term his deregulation was stymied by courts. This time the courts can no longer lean on deference to federal agencies and their regulations. I haven’t seen many people explicitly state that DOGE will work because there’s no way to stop it in light of the Supreme Court ruling. This will translate into even more activity, especially in the field of energy production.
Lower Interest Rates
On Wednesday, (December 18, 2024) the Fed cut rates a quarter point and indicated there would be fewer rate cuts ahead. The reality is that the Fed is in a pickle. Inflation is higher than it should be. It’s persistent and slowing down economic activity. Lowering interest rates typically increases inflation and raising rates lowers inflation. So that means that they shouldn’t be lowering much at all right now. Inflation is too high. Well, the answer to that is energy production increases. Once we get the oil to flow and the economy to produce we can lower interest rates.
The other part of the pickle is that Powell doesn’t know what Trump will be able to do. He wants to see if Trump will follow through on my first three steps. He hasn’t explicitly told me that, but I’m pretty sure Powell reads my blog. Nonetheless, Powell giving future guidance to investors is like a parent telling a child they might be able have ice cream. It depends on so many factors, but investors and children overreact nonetheless. After Powell’s Wednesday hawkish turn, the markets dropped. Temper tantrums is all.
Conclusion
What should happen in 2025 is the following:
- Lower the cost of energy by extracting more oil from the ground.
- Make bigly Federal spending cuts.
- Deregulate in a post-Chevron Deference era.
- Lower interest rates.
To the degree that Trump, his administration and Congress can make those things happens we are on the right track.