The resounding win by Trump and the Republicans in November signaled that the country is desperate for change, with Americans clearly saying to Washington “this isn’t working” vis-à-vis the current state of the US. [emphasis, links added]
While the mandate may be clear, the execution of that change is going to be a gigantic challenge.
The Biden-Harris administration has left our fiscal house in complete disarray, limiting many of the options that will be available to Trump, as well as putting core policy proposals at odds with our fiscal reality.
Here are three of the biggest challenges that the incoming administration will have to navigate.
Spending cuts and the deficit
With a $36 trillion debt load that is above 120% of the GDP and growing at a pace of around $1 trillion every 100 days and a deficit that is double the historic average in terms of a percentage of GDP, any spending cuts will require careful choreography.
Tools and tactics that may have been able to be used in the past now must be wielded much more carefully.
With disruptors Elon Musk and Vivek Ramaswamy heading the Department of Government Efficiency (fondly known as DOGE), they will easily be able to identify ample spending and regulatory cuts.
However, the execution must be to prioritize those efforts that increase GDP before they cut spending. …snip…
Oil production
One of Treasury Secretary nominee Scott Bessent’s three stool legs for his “3-3-3” economic plan (along with deficit-cutting) is unleashing growth by growing our oil production by an incremental three million barrels or more per day.
More production, the theory goes, will increase our energy independence and lower costs on just about everything.
The challenge is that the oil industry needs a certain price to operate profitably and even higher prices to make the investments and fill the pipeline (no pun intended) for future drilling and refining.
A recent Wall Street Journal article noted that “U.S. energy companies on average say they need WTI crude prices to be at least $65 a barrel for drilling to be profitable and $89 a barrel for them to increase drilling substantially, according to the latest survey by the Kansas City Federal Reserve.”
Experts believe that even with deregulation in the industry, there may not be enough cost savings to shift this dynamic.
Trying to spur growth with oil production when there is a hard floor on oil prices from a practical standpoint is a conundrum.
This is a puzzle that the Trump administration will need to solve. …snip…
Trump has lined up many strong individuals on his team and has an entrepreneurial vision, but his task economically and financially remains a daunting one.
Americans will need to have patience as good policy objectives are faced with the US’s stark fiscal realities.
Read full post at Fox News
