QUESTION: Mr. Armstrong, this feud between Trump and Musk has caused me to wonder about Musk. Then, all of these forecasts are using tools you warned do not work because they rely solely on linear analysis. The Tax Foundation said Trump’s bill would result in a $2.6 trillion increase in the deficit. The University of Pennsylvania’s Penn Wharton Budget Model claimed that the bill would raise deficits by $2.8 trillion. Then Yale’s Budget Lab claimed that over a 30-year window, the bill would add $10.8 trillion to the national debt. None of these organizations even understands that there is a business cycle. I find all of this chatter is no different from the climate change projects, as you said, one degree up this year means that will continue forever, and we will all die in 50 years.

Does Socrates have any view that is more reliable than these fake academic prognostications that are never right even once?

Rich

ANSWER: These forecasts are totally worthless. The CBO’s projections for the federal budget deficit were about $900 billion in 2019, and it was expected to exceed $1 trillion each year beginning in 2022.  The deficits for 2020, 2021, and 2022 were $3.1 trillion, $2.7 trillion, and $1.3 trillion, respectively. They are incapable of forecasting. How many millions do these fake forecasts cost? We will do it for 10% of their budget.  They are all based not just on linear analysis, but on the classic assumption that all things remain equal. They NEVER understand that there is a natural inherent business cycle.

Socrates examines everything, and nothing ever remains the same. We have a Directional Change in the annual budget in 2026, and then you see the big target is 2027. Just looking at the French government, which is in its 5th Republic. France changes government like the Biden Administration changed the definitions of a woman from women’s rights for abortion to his appointment of Jackson to the Supreme Court, who said she could not define what a woman is. The French government is expected to fall in 2027, potentially taking the EU with it.

When you look at the chart for the annual budget deficit, we peaked with the COVID-19 pandemic in 2020. Look at the 1998-2002 period. We had a balanced budget. I was asked by the Wall Street Journal to write about how this was accomplished. In sum, the manner in which President Clinton (1993-2001) was able to balance the budge was (1) the economy recovered in 1994 with capital pouring into the United States as it fled South East Asia resulting in the Asian Currency Crisis in 1997, (2) US Interest rates rose sharply in 1994 attracting huge capital inflows including those from Japan, and (3) Clinton shortened the maturity of the debt funding it short-term to cut interest expenditure.

The National Debt rose from $4,064.6 billion in 1992 to $5,807.5 billion by 2001. The shift in funding slowed the rate of growth. Interest rates at the Fed dropped by 6.5% in 2000 to 1.75% in 2001. When Clinton took office, the Fed Discount Rate stood at 3.5%. The rise began in 1994, which helped to attract foreign capital, especially from Japan, and it peaked in 2000 with the Dot Com Bubble on the heels of the 1998 Long Term Capital Management debacle that followed the collapse of Russian debt.

However, because Clinton shifted from long-term to short-term, which reduced the interest expenditures, now look at how the debt exploded when the rates went back up to 6.5%. This is what I mean by the Fed can no longer control inflation, for the biggest borrower is the government.