Dear Reader,
I’ve had dozens of questions from friends and members about this public rift between Elon Musk and President Trump.
Specifically, about Musk coming out against Trump’s budget calling it, “a disgusting abomination.”
I don’t want to misquote him, so here’s what he said:
“In November of next year, we fire all politicians who betrayed the American people.
“This bill will massively increase the already gigantic budget deficit to $2.5 trillion a year and burden American citizens with crushingly unsustainable debt.”
Naturally, given my position on this, folks have been asking me what I thought about Musk’s comments.
Look, I talk about policy, never about politics.
There’s game upon game here.
For example, one of the reasons Elon Musk is upset, in the Trump administration’s defense, is that he’s losing credits that helped Tesla.
I understand that game and I’m going to avoid the political side of it and focus on the budget deficit and economic side of it.
Does Elon Musk have a point?
Of course he does.
Anybody who’s been reading anything I’ve been talking about, listening to me in any way, shape or form, knows that we are entering a crisis zone.
And as Jamie Dimon said, as Ray Dalio said, we are all worried about something worse than a recession.
And basically, what we know, and I’m sure Treasury Secretary Scott Bessent knows, which is why you really haven’t seen him much on TV lately…
Is that Wall Street is having trouble selling debt.
We have too much debt, and too little demand at current rates. This is a supply-demand problem.
The crazy thing is, at our current $2 trillion a year deficit, $1 trillion a year, half, is spent on interest costs alone.
These interest payments are starting to choke us.
Some folks say the Fed chairman should lower rates and that’ll be fixed.
That’s not true.
That’s fake news.
If you artificially lower rates that’s even worse, because nobody wants to hold bonds because they know you’re gaming the system.
These are professional investors who buy these things - they’ll know.
If the economy weakens, rates will go down and our interest expense will go down, because we’re financing a lot of short-term debt.
But, the downside of that is so will your growth and the actual debt to GDP ratio will get worse and the deficit to income ratio will get worse, too.
So we’re entering a situation where we are putting ourselves in a trap.
Make no mistake about it.
And the people who are buying - I know because friends of mine are in the bond business on Wall Street - are sending out warnings.
This is serious stuff.
I agree with Elon Musk that the bill is a “disgusting abomination” as currently written.
I understand politics is politics and everyone has to cut deals.
It’s the art of compromise, and I’m not saying I could do it better. I don’t know the inside baseball of how Capitol Hill is doing this, but what I do know is, I’m old enough to remember that Bill Clinton had a similar situation…
The bond market was rebelling at the time, and he cut a deal with Republicans, right at the top.
He said, we gotta do a deal that puts us on a more sustainable fiscal plan trajectory.
And then of course we cut here, increased taxes there, and the nineties were great.
It got our fiscal house in order, sent interest rates down naturally, and we had the internet boom.
So really, what’s so troubling to me about this bill right now is that we’re doing it at a time when we have such a good economy thanks to AI.
We have this natural growth engine that will allow us to absorb a lot of expenses, but we’re starting to choke our capacity.
I’m a student of history and I can tell you - there is not one country that survives when its debt to GDP ratio gets this big.
We won’t have a bankruptcy like a General Motors or Ford…
The only way to do this is to inflate your way out of it.
Nobody’s going to want to hold our debt.
So the value of our currency is going to get debased in a way that’ll make every $100,000 you have be worth $70,000 in five years, seven years, whatever. Every dollar worth 70 cents.
Empires, like organisms, have a life cycle.
And this accelerates the decline of the life cycle of the United States as an organism.
It puts us in a tough situation if the party of fiscal responsibility is doing stuff like this.
Because let’s face it - we know the left will do stuff like this all day long.
We’re going to see a crack in the bond market. It’s going to happen.
I don’t know if it’s six months, two years, six years…
But it’s going to happen.
And this bill, you heard it here, will be the last best chance to avoid that.
So yes, I’m very concerned.
I hope the adults in the Senate can really work on it, because as it is right now, it’s not pretty for us.
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