Stabbed in the Back

The path to bankruptcy and financial chaos is well signposted and well-trod. The Big Man did not discover it. He merely stayed on it.

Federal debt held by the public will increase by 9% to 11% by 2034, according to a Congressional Budget Office memo on the budget bill. Debt service costs will rise by at least $718 billion. The public currently owns $29 trillion in US government debt, about 96% of US GDP

Friday, August 8^th, 2025

Bill Bonner, from Poitou, France

‘We are now in a new world. Even to trade nerds, the complexity of this is just bonkers.’

—Chad Bown, senior fellow at the Peterson Institute for International Economics

You’ll recall that Oswald Spengler predicted that around the year 2000 western democracy would peak and would be succeeded by a period of strongman leaders.

Our question is this: To what extent does our own Donald J. Trump fulfill the prophecy?

‘Who cares?’ is another question that might come up. But our beat is money. And since the feds directly control 20% of GDP (in round numbers) and indirectly control another 20%, it’s worth looking more closely at how the new Trump model works.

“There are three stages to a king’s life,” explained a French friend at a party last night. The moon was full. We dined outside in a magnificent garden. Red wine and philosophy overcame him:

“There is love. There is war. And there is architecture. All are ruinous. But architecture is the worst. Louis 14th’s Versailles Palace practically bankrupted France.”

The Congressional Budget Office projects debt service costs will increase by a minimum of $718 billion dollars by 2034 under the terms of the new budget bill. Higher interest rates could push that cost even higher, adding over $4.1 trillion to the nation’s $37 trillion total debt.

Authoritarians don’t have to be big spenders. But most are. The Big Man tends to buy support by recycling taxpayer money. Plus, he has big ideas. He wants conquests, ‘wins,’ parades and monuments.

So far, Trump’s lust-list has been fanciful (make Canada the 51st state!) or no worse than his Obama- and Biden-era predecessors. He did push through a big, beautiful budget abomination (BBBA) that will bring total US debt to $60 trillion or so by 2035.

But this is a feature of the old world, not a new one. The path to bankruptcy and financial chaos is well signposted and well-trod. The Big Man did not discover it. He merely stayed on it.

When it came to ‘trade deals,’ however, Trump seemed to channel his inner Caesar. Government-managed trade is a major departure from the policies of the last 70+ years...and from the traditional platform of the Republican party.

The world learned long ago that people are generally better off when people are allowed to decide for themselves with whom and how they trade. But the lesson was lost on the Big Man.

POTUS, not Congress (as the Constitution would seem to require) has imposed tariffs. They will be paid by importers, not exporters...and ultimately will amount to the biggest tax increase in American history.

They are expected to bring in over $300 billion this year and $2 trillion over the next ten years...a huge transfer of real wealth from the taxpayers (in this case, consumers) to the feds.

And here is where the difference between clumsy, consensual democracy and Big Man government becomes important.How many Americans really want a tax increase? Not many. And among MAGA fans probably even fewer. Sen. Rand Paul put the question to Larry Kudlow:

"But the question I would ask you, Larry [Kudlow], is, they're bragging that they think they can bring in $2 trillion in revenue over 10 years. If someone came to you and said, 'Hey Larry, I've got this great idea for a value-added tax that'll bring in $2 trillion over the next 10 years,' you'd shake your head and say 'We don't want to be Europeans, we're not for that, and we've never been for adding a sales tax without removing some other tax.'"

"...But...we're getting $2 trillion in taxes on top of all the other taxes that we have. So ultimately conservatives have to decide, do they like taxes because they're Donald Trump's taxes, or do we still say that we don't want more revenue coming out of the productive economy and going to government, that we want to balance the budget by reducing spending, not increasing taxes?"

Tariffs are not uniquely awful.

Government absorbs a large part of national output each year. Whether it gets the money from income taxes, sales (tariff) taxes, or inflation (printing money)...the gross effect is the same.

But the net effect...including the collateral damage...varies.

Income taxes (in theory) discourage people from earning more money.

Sales taxes (including tariffs) discourage them from spending it.

And inflation discourages them from saving it.

Which is worse? We don’t know. But the Big Man in the White House insists on ALL three of them. We have direct income taxes. We have inflation. And now we have a huge ‘Value Added Tax’ masquerading as tariffs.

Most Americans may oppose it, but the Big Man does what he wants.

Up to a point.

The press reports that some MAGA fans – Rand Paul, Candace Owens, Tucker Carlson et. al. -- are asking: have we been betrayed? Suckered? Stabbed in the back?

How serious is the ‘right-wing’ backlash? We’ll look at it next week.

Regards,

Bill Bonner