Trump’s Big Bet
I have a ton of people asking me what the hell is going on. Should you sell everything? Well, oddly enough, there appears to be a plan.
Trump and his team have been spending a lot of time with the likes of Bukele of El Salvador, President Milei of Argentina, and Italian Prime Minister Giorgia Meloni. He is also a big fan of the former PM of Japan, Shinzo Abe.
All of these leaders made bold, aggressive changes to their countries that worked.
Abe came up with the “Three Arrows” plan, which included monetary easing, fiscal stimulus, and structural reforms. It caused initial pain but the Nikkei doubled under his watch after falling for three decades.
Bukele broke the backs of the world's worst gangs by throwing them all in jail. Milei is creating an economic miracle in Argentina by cutting red tape and corruption, and Meloni reduced illegal immigration to Italy by 60% and championed traditional Italian culture and arts.
All of these leaders flipped the card table and changed the game. Trump isn’t playing around the edges here, he is doing a full reset.
The Trump Plan
Trump's Treasury Secretary, Scott Bessent, came up with a plan called “3-3-3” to reshape the U.S. economy by 2028.
- Reduce the Federal Budget Deficit to 3% of GDP: This involves cutting the deficit from its current level (around 6-7% of GDP in recent years) to a more sustainable 3%.
- Achieve 3% Real GDP Growth: The plan seeks to boost annual economic growth to 3% through deregulation and tax policies favoring businesses.
- Increase U.S. Energy Production by 3 Million Barrels of Oil Per Day (or Equivalent): This aims to enhance energy security and lower energy costs by ramping up domestic oil output or its equivalent in other fuels.
Debt is the Death of Empires
The U.S. money supply increased by 40% during the COVID-19 years. The debt clock is at $36T or 123% of GDP, a percentage at which countries tend to fall into a debt spiral.
This year, $9.2T in debt matures. The Fed won’t cut rates due to inflation fears.
But high yields are expensive. If this $9.2T is rolled into 10-yr bonds, every 1 basis point drop in rates saves approximately $1B a year; so a 0.5% drop would save $500B over a decade.
We’ve been talking about high debt and high yields forever. When the government spends money on high-interest debt, it crowds out core spending. That debt is now due…
So the Trump team means to push down yields despite inflation and the Fed by creating uncertainty.
If you slap on some high tariffs, insult your trading partners scare the markets, it will trigger a rush to safety by buying t-bills. Yields drop and debt gets cheaper.
And it’s working:
This has the side benefit of making housing more affordable. That said, the debt is so big that it needs more than just lower rates.
That’s step two. Trump has sicced Elon Musk and his DOGE team on the bureaucracy to cut $4 billion a day and shave off $1T by the end of September 2025.
Second “3”
That’s the first “3.” The second bullet point is to drive GDP growth. The idea is that using tariffs will drive GDP as factories open in the U.S. and the country gets another industrial revolution.
The problem is that you can’t build factories overnight, which is why the Trump team is causing pain now. They think that by the mid-term election in eighteen months, the numbers will be favorable, the benefits apparent, and the pain forgotten.
Short-term the president will offer tax relief and possible currency devaluation. This will be offset by the income produced by tariffs. Some analysts have suggested that it could be $700 billion.
Risky Bet
There are huge risks to this gambit. If supply chains don’t adjust or if international retaliation wins, it will kick off another round of inflation. In which case, the Fed will raise rates and destroy the low-yield plan.
Remember, Trump is a negotiator. Tariffs aren't an end in themselves; it is a way to bring people to the table and change the world order economically, politically and militarily. That has inherent risks as well.
Will it Work?
It will be a success if jobs return to key states like Pennsylvania and Ohio, inflation remains low, the deficit drops, and the stock market bounces back. In that case, the Republicans will win the midterms, and Trump will be heralded as an economic and political genius.
If prices spike, jobs lag, and 401ks continue to implode, he will be a lame-duck for his final two years and referenced with the likes of Herbert Hoover and Jimmy Carter in the annals of history.
We shall see…
All the best,
Christian DeHaemer
Outsider Club
