Goldman Sachs says Trump’s expenditure plan will not prevent the public debt from making “not sustainable” highs

The expenditure calculation passed from House Republicans, combined with increased Tariff incomeIf the budget deficit will reduce the fact that Goldmans Manuel Abecasis, David Mericle and Alec Phillips recognized in a note on Tuesday. Coupled with rising Loan costsThey said the invoice left the course of the overall deficit essentially unchanged.

“However, this path does not remain sustainable: in a strong economy, the primary economy is much greater than usual, the relationship between debts to GDP is approaching the high postal (Second World War), and much higher real interest rates have reduced the debt and interest expenditure as a share of GDP on much steeper bonds than it probably appeared in the last cycle,” wrote the gold team.

As the charts above show, the scale of future debts depends heavily on how interest rates will move over the next decades. At the moment the 36 US dollars The public debt accounts for around 120% of GDP, and the finance department is more like to meet the increasing costs for maintenance.

The United States pays more interest for its debts than for Medicare and Defense. These interest payments will be 1 trillion US dollar next year and will only leave social security as the government’s greatest effort. after To the committee for a responsible federal budget, a think tank.

“If the debts grow large enough,” wrote the Goldman team, “the interest effort could be so great that the stabilization of debts to GDP would require fiscal surpluses of a size that was historically rarely maintained because it is economically expensive and politically difficult.”

The first administration of Trump and Biden reacted to the Covid 19 pandemic with a war budget. But the cone was never switched off, even when the US economy went back into full employment.

The impartial congress office of the congress Estimates The version of the GOP editions adopted by the house would increase the deficits by 2.8 trillion dollars in the next decade. The White House and some Republican legislators argue This projection should not include the costs for the extension of Trump’s tax cuts in 2017, which should expire this year without the invoice.

But the core of the $ 36 trillion problem is that nobody knows at which level the debt is not sustainable, said Gennadiy Goldberg, the head of the US interest rates at TD Securities, told Assets.

Finance Minister Scott Bessent said The US government has an “spending problem”, but not a “sales problem”. Goldberg agrees with the earlier argument, but said that the United States does not tax much compared to the size of the country’s size and government spending.

“So either taxes have to rise, expenses have to fall or a combination of both,” said Goldberg last month. “And it just sounds, but it’s very, very, very complicated to find out.”

Higher interest rates would increase the deficit pressure

If you continue to take measures, future legislators will be created in a narrower place, especially if the loan costs rise.

Have yields for long-term US financial bonds remained increased While the investors are waiting for a patient Federal Reserve to lower interest rates, and Issue About the burgeoning deficit and a possible revival of inflation could continue to put pressure on the installments.

Experts with fixed income are also close surveillance Changes to the foreign demand for US debt. When increasing trade and geopolitical tensions undermine the status of the dollar as the world reserve currencyThe US government would also borrow higher interest rates than it is used to.

This means that the congress may be forced to decide more and more difficult to decide when it comes to expenses and taxes. If the legislator waits too long, historical austerity measures could be necessary to avert a disaster, said the Goldman team.

“In this scenario, one could deal with the fact that a large fiscal consolidation and a persistent tax surplus itself could be defeated, and the GDP may not shrink the ratio of debts to GDP,” they wrote.

Of course, politicians would also have the temptation to print a lot of money to pay the government’s legislative regulations. The Weimar Republic of Germany tried this tactic after the First World War. It led to it ruinous hyperinflationthe economic discomfort and the social unrest that led to the rise of the NS party.

However, this warning from history is not always observed by the governments.