Chapter 2: Excessive Debt
The U.S. debt problem has already reached a critical level. As of July 2024, U.S. debt has reached $35 trillion, with interest payments exceeding defense spending. Paying off this debt is virtually impossible, especially since politicians rely on public support. It’s almost unthinkable for them to cut spending, knowing that doing so would weaken the economy. Who would vote for someone whose policies make their lives more difficult?
So, the method the U.S. has relied on has been simple:
Keep printing dollars, trigger inflation, and devalue the currency to reduce the real burden of debt.
This has been the U.S.'s go-to strategy for a long time, and for a while, it worked. When money flows into the market, the private sector thrives. Up until the Biden administration, this approach seemed to be working to some extent. But during the COVID-19 pandemic, an excessive amount of money was injected into the economy, pushing inflation beyond a sustainable level and accelerating the pace of debt accumulation beyond control.
Where Does U.S. Debt Come From?
The U.S. debt problem largely stems from two sources: trade deficits and government spending deficits.
- Government Spending Deficit
The key to reducing government spending is "DODGE." As many people have noticed, Elon Musk has been aggressively cutting jobs.
A typical politician could never do this, but both Trump and Elon Musk come from business backgrounds, so they don’t have the same aversion to making these kinds of tough decisions.
Of course, cutting government spending and reducing the money supply will help control inflation.
While this will be beneficial for the future of the U.S. economy, in the short term, it will hit the current economy hard.
Historically, the U.S. stock market has risen whenever the Federal Reserve (Fed) lowered interest rates or the government injected money into the economy. That is, stock prices increased when there was more money circulating in the market. However, if Trump moves forward with spending cuts, it will likely have a negative impact on the stock market.
Industries heavily reliant on government-funded projects may experience declining stock prices over the next 1–2 years. Of course, the future is uncertain, but it might be wise to explore investment opportunities outside these sectors.
- Trade Deficit & Tariff Policy
The U.S. is looking to resolve its trade deficit through tariff policies. The strategy involves pressuring companies to move manufacturing back to the U.S.
Currently, Trump has stated that he plans to impose tariffs on all countries worldwide. However, in practice, it is unlikely that he will follow through with this on such a broad scale.
The worst-case scenario for the U.S. would be if the country imposes tariffs on everyone, while other nations trade freely among themselves.
This would severely undermine the competitiveness of American products, forcing U.S. consumers to pay significantly higher prices for lower-quality goods.
If this situation persists—where U.S. trade shrinks while other countries' trade flourishes—it could even lead to global doubts about the necessity of using the U.S. dollar as the world’s reserve currency.
Trump’s real strategy likely isn’t to tax all nations equally. Instead, he’s positioning himself in negotiations:
Some countries will face high tariffs.
Some will face lower tariffs, depending on the deal they strike with the U.S.
The Shift Toward a Block Economy
The global economic landscape is shifting away from full-scale free trade toward a "block economy" system.
Going forward, the world will likely be divided into three or four major economic blocs, where countries within each bloc benefit from tariff exemptions.
The U.S.-led economic block will likely include:
- Countries that possess semiconductor or high tech material industries but lack food and resource self-sufficiency, making them dependent on the U.S.
- Countries with cheap labor forces but structural limitations that prevent them from becoming major global powers.
-Countries where the U.S. can have a trade surplus
The primary goal of the U.S. in structuring block is to ensure that economic benefits from trade with the U.S. do not ultimately flow into "China".
Additionally, the U.S. is actively working to weaken competing economic blocs, particularly the one led by China—BRICS (Brazil, Russia, India, China, South Africa).
This is one of Trump’s top priorities.
It is also why the U.S. has recently been more lenient toward Russia, despite it being part of BRICS.
The strategy is simple: split Russia from China. Russia is rich in natural resources, and if the U.S. can pull it away from China’s economic influence, it will significantly weaken China’s position.
Of course, the goal is not to completely ruin China, but rather to prevent it from challenging U.S. hegemony, similar to Japan's 'Lost 30 Years.' Instead of completely cutting off trade, the aim is to regulate it within limits that benefit U.S. dominance.
The U.S. debt problem has already reached a critical level. As of July 2024, U.S. debt has reached $35 trillion, with interest payments exceeding defense spending. Paying off this debt is virtually impossible, especially since politicians rely on public support. It’s almost unthinkable for them to cut spending, knowing that doing so would weaken the economy. Who would vote for someone whose policies make their lives more difficult?
So, the method the U.S. has relied on has been simple:
Keep printing dollars, trigger inflation, and devalue the currency to reduce the real burden of debt.
This has been the U.S.'s go-to strategy for a long time, and for a while, it worked. When money flows into the market, the private sector thrives. Up until the Biden administration, this approach seemed to be working to some extent. But during the COVID-19 pandemic, an excessive amount of money was injected into the economy, pushing inflation beyond a sustainable level and accelerating the pace of debt accumulation beyond control.
Where Does U.S. Debt Come From?
The U.S. debt problem largely stems from two sources: trade deficits and government spending deficits.
- Government Spending Deficit
The key to reducing government spending is "DODGE." As many people have noticed, Elon Musk has been aggressively cutting jobs.
A typical politician could never do this, but both Trump and Elon Musk come from business backgrounds, so they don’t have the same aversion to making these kinds of tough decisions.
Of course, cutting government spending and reducing the money supply will help control inflation.
While this will be beneficial for the future of the U.S. economy, in the short term, it will hit the current economy hard.
Historically, the U.S. stock market has risen whenever the Federal Reserve (Fed) lowered interest rates or the government injected money into the economy. That is, stock prices increased when there was more money circulating in the market. However, if Trump moves forward with spending cuts, it will likely have a negative impact on the stock market.
Industries heavily reliant on government-funded projects may experience declining stock prices over the next 1–2 years. Of course, the future is uncertain, but it might be wise to explore investment opportunities outside these sectors.
- Trade Deficit & Tariff Policy
The U.S. is looking to resolve its trade deficit through tariff policies. The strategy involves pressuring companies to move manufacturing back to the U.S.
Currently, Trump has stated that he plans to impose tariffs on all countries worldwide. However, in practice, it is unlikely that he will follow through with this on such a broad scale.
The worst-case scenario for the U.S. would be if the country imposes tariffs on everyone, while other nations trade freely among themselves.
This would severely undermine the competitiveness of American products, forcing U.S. consumers to pay significantly higher prices for lower-quality goods.
If this situation persists—where U.S. trade shrinks while other countries' trade flourishes—it could even lead to global doubts about the necessity of using the U.S. dollar as the world’s reserve currency.
Trump’s real strategy likely isn’t to tax all nations equally. Instead, he’s positioning himself in negotiations:
Some countries will face high tariffs.
Some will face lower tariffs, depending on the deal they strike with the U.S.
The Shift Toward a Block Economy
The global economic landscape is shifting away from full-scale free trade toward a "block economy" system.
Going forward, the world will likely be divided into three or four major economic blocs, where countries within each bloc benefit from tariff exemptions.
The U.S.-led economic block will likely include:
- Countries that possess semiconductor or high tech material industries but lack food and resource self-sufficiency, making them dependent on the U.S.
- Countries with cheap labor forces but structural limitations that prevent them from becoming major global powers.
-Countries where the U.S. can have a trade surplus
The primary goal of the U.S. in structuring block is to ensure that economic benefits from trade with the U.S. do not ultimately flow into "China".
Additionally, the U.S. is actively working to weaken competing economic blocs, particularly the one led by China—BRICS (Brazil, Russia, India, China, South Africa).
This is one of Trump’s top priorities.
It is also why the U.S. has recently been more lenient toward Russia, despite it being part of BRICS.
The strategy is simple: split Russia from China. Russia is rich in natural resources, and if the U.S. can pull it away from China’s economic influence, it will significantly weaken China’s position.
Of course, the goal is not to completely ruin China, but rather to prevent it from challenging U.S. hegemony, similar to Japan's 'Lost 30 Years.' Instead of completely cutting off trade, the aim is to regulate it within limits that benefit U.S. dominance.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.