US Government budget plan
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
To ‘run the US like a business’, that is what Trump promised. His desire is to emulate his success as a businessman.
In June 2016, Trump described himself as ‘the king of debt’ and stated, ‘I’m great with debt, nobody knows debt better than me”. However, in his campaign for the presidential seat, Trump criticised incumbent President Barack Obama on his government spending plans that increased US national debt; according to Trump at that time he said, “the government is sitting on a time bomb”.
Despite Trump criticising the burgeoning US Government Debt, old habits, so it seems, never die. He has returned to his well-known practises of using debt.
Last Friday, the President signed a new budget bill allowing increasing government spending adding an extra $300bn over the next 2 years to the country’s debt pile.
US Total Debt ($ Trillion)
Source: Bloomberg, 31 December 2017
What’s in the Government Spending bill?
The two-year approved deal will mainly focus on defence which will increase by $165bn. There is also $131bn in domestic spending on big ticket items such as infrastructure and healthcare.
Interestingly, the two-year spending bill is not the only fiscal proposals to be announced in the US over the last 10 days. On Monday, the White House also delivered the US budget proposal for the next decade. The Trump administration is seeking to increase spending in infrastructure by $200bn over the next 10 years and allocate more money to the military, including support for ‘the wall’ to be built along the US border with Mexico.
These proposals are expected to increase the federal deficit by a further $984bn despite cuts in federal health insurance (Medicare) for people 65 or older and other domestic programmes and entitlements. Trump’s administration is now expecting to begin reducing the deficit in 2039 instead of 2027.
Sceptics see this as the ‘king of debt’ metaphorically speaking now sitting comfortably on his throne. Critics include the former chief economist of the International Monetary Fund who has stated that “it’s obvious that it’s the wrong timing for a deficit”. In his view, the US economy is running at full speed and fiscal stimulus is mostly needed at times when an economy is struggling.
Nevertheless, the increase in spending will most likely stimulate the pace of economic growth in the US. As the United States is the biggest economy in the world, it is no surprise that some of the effects will spread across the globe.
Just how long can the government extend the economic cycle is unclear, but history suggests it may not roll-over soon; certainly not with such stimulatory measures in place.
