Investors weigh whether Donald Trump might turn to unconventional ideas to try to control the controlled US debt, after the president insisted he would not cut off health and popular retirement benefits.
Some Trump advisors have adhered to unusual ideas in recent months, including forcing foreign governments to exchange treasury with lower bonds to reduce interest payments and sell residency cards to rich foreigners at a price of $ 5 million per pop.
With many officials and economists say that US debt is on an unsustainable track, investors in US bonds, currencies and equity markets begin to pay more attention to these ideas.
US debt reaches $ 36 trillion, or more than 120% of the Annual Economic Output (GDP), and increases as soon as possible because the government spends more than raising taxes. Last year, the US budget deficit occupied 6% of GDP – although Minister of Finance Scott Besent said he wanted to divide in two.
Trump’s new government has launched an aggressive step to cut federal expenditure through the Elon Musk Government Efficiency Department (DOGE). And has announced plans to increase additional income by imposing heavy tariffs on imports from trading partners including China, Mexico and Canada.
More than half a dozen investors and economists told Reuters the results of efforts to cover the fixed deficit unclear. And there are no other external ideas that have enough impact to control fiscal situation, they added.
Indeed, the exchange of forced debt with foreign governments can damage the feasibility of US loans and disrupt the global financial system, said they-Torpedoeing BESSENT goals to reduce results on the 10-year Treasuries benchmark, which underlies borrowing costs throughout the economy.
“The prospect to manipulate long -term results through a kind of financial or political engineering operations is very limited,” said Larry Summers, an economist who served as a financial secretary under President Bill Clinton, a Democrat.
An official with the National Economic Council of the White House-Main Group of Economic Advisor to the President-said that “out-of-the-box thinking is what is needed,” blaming the previous democratic administration for adding a deficit and causing inflation.
Trump, said the official, had moved quickly to “restore fiscal sanity.”
The official said the decline in US long -term interest rates in recent weeks was a sign of market confidence in Trump’s policy. As further evidence, the official refers to the decline in the term premium, which measures what investors impose to hold debt for a longer period of time.
Recovery in US bond prices
After the Trump election in November, investors have sold government bonds in the midst of fears that their policies – including tax deductions and tariffs – will cause the US deficit to worsen and place the economy in the inflation line.
But since mid -January, a few days before Trump’s inauguration, the 10 -year treasury benchmarks have dropped dramatically. The 10 -year -old result, which moves upside down to the price, has dropped to around 4.2%.
The term premium, which partly reflects investor feelings about future debt size, has also declined, but remains strong in positive areas after being negative for years.
However, some investors argue that the results have fallen not because of optimism around the US fiscal trajectory but because Trump’s policy has increased economic uncertainty – regarding consumer and business trust, and leads to talks about slower or negative growth.
The concern was also displayed in the stock price, some investors said. Benchmark as S&P 500 SPX has dropped more than 4% since Trump returned to the White House on January 20 to a decline of around 1.3% for the MSCI stock index in more than 40 other countries.
Niladri Mukherjee, Head of Investment at Tiaa Wealth Management, said “The surge in policy uncertainty” might lead to soft patches in the economy.
“The campaign promise is one thing, but the devil is in detailing in terms of policy making,” he added.
Whatever the reason for the movement of the new market, Trump administration needs to persuade investors to control debts. If not, investor disappointment can trigger the start of bond sales, increase loan costs and hamper administrative capabilities to pursue their agenda.
“The price of bonds, such as the price of any financial assets, especially determined from time to time by fundamentals, and budget deficits so far are the most important fundamentals,” Summers said.
Mar-a-lago agreement
In a November paper, Economist Stephen Miran, which Trump had chosen to lead the Economic Advisory Council, increased the possibility that Trump could use the threat of tariffs and the lure of US security support to persuade foreign governments to exchange their treasury ownership with lower century ties.
Miran, who served as the advisor to the Ministry of Finance during Trump’s first term of office, wrote the newspaper before his nomination while working as a senior strategic expert at Hudson Bay Capital Management, an investment management company. He has not been confirmed.
The idea is part of a series of steps to increase US competitiveness called Miran ‘Mar-A-Lgo Accord’, after Trump’s residence in Florida. Miran refused to comment on Reuters, waiting for confirmation.
Such debt exchange can produce around $ 100 billion in interest costs per year, estimated Julian Brigden, President of Macro Intelligence 2 Partners, a research company.
Although significant, this will be a small part of the debt load. The debt held by the public is expected to rise to $ 52 trillion in 2035 from $ 30 trillion this year, according to the estimated budget office of the latest Congress.
But concerns about the exchange of further forced debt can result in sales pressure in the vocabulary, encouraging higher results, some investors and economists say – increase the risks associated with the safest assets in the world.
“Maybe they can bring political pressure to some people to buy bonds,” Summers said. “But that might make others nervous holding assets supported by political pressure, which tends not to work forever.”
NEC officials said Miran’s papers discussed various potential choices without advocating for them, and only Trump could say what he would adopt.
James Bianco, Head of the Chicago -based advisory company, Bianco Research, said Trump had adopted several steps shown by Miran, including the use of tariffs as a lever for security agreements and creating sovereign wealth funds.
“I began to realize that many things in the newspaper happened,” Bianco said.
Expect unexpected
Another idea that floated by administration was the “Gold Card” program, which was said by Secretary Trump and trade Howard Lutnick could help reduce the deficit. Trump said the residency plan had the potential to collect trillions of dollars and help pay off US debts.
Projection has been met with skepticism. Some immigration and wealth advisers say it is impossible to trigger a large stream of rich global investors because it will open their global income for US tax.
The additional subject of market speculation is the idea that administration can try to use the country’s gold supply.
With the current market price, the gold detained at Fort Knox, Kentucky and other locations will be worth around $ 758 billion, but only worth $ 11 billion in the Federal Reserve balance because the 1973 law set the price, TD Securities, an investment bank, said in the February 20 record.
Trump and Musk said they wanted to confirm that gold had not been stolen from a rank. Bessent has talked about monetizing “the side of the US balance sheet asset for the American people,” but says that gold revaluation is not what is in his mind.
Ed Mills, an analyst at Raymond James, a financial service company, said Trump might take advantage of his experience as a real estate developer in any effort to overhaul the country’s debt.
“Trump has spent his life regulating and re -finance the debt of Trump’s organization,” Mills said.
Trump, with his own story, was almost bankrupt in 1990 and was forced to ask for dozens of banks to change the requirements on their loans and forgive some of his debts – an event that he considered as proof of the skills of negotiating and intelligent thinking.
“With Donald Trump, you must expect the unexpected,” Mills said.
Source: Reuters
