Read My Lips...it's the Deficit, Not Rates or Taxes, That is the Problem
June 21, 2025
One of the rewards that I get from writing these ‘Random Walk’ musings is getting feedback from readers. The last time I had your attention, one of the several of you with more experience and greater knowledge pointed out that the surprising market strength that I was discussing owed a lot to the decline in value of the dollar…a smart insight that I had overlooked.
The dollar has declined about 10% in value since the start of the year. When the dollar rises in value, US produced goods are more expensive for international buyers and the dollar value of overseas sales is reduced. Companies often mention and calculate the impact on results when the dollar is strong. They are generally not as forthcoming in the reverse, not detailing how the dollar’s decline has positively impacted their company's results, making it easier to overlook…as I did.
Interest rates are a significant factor in currency valuations. As the Federal Reserve was starting to cut rates, indicating rates had likely peaked, capital flowed into other currencies and the dollar declined in value. The question of interest rates and the trade-off between inflation, economic activity, and employment that is impacted by them can be a black hole of endless conjecture which we do not want to engage with further today. Nonetheless, interest rates is a topic that will be ever present now as the increasing rancor surrounding the attempt to approve a federal budget unfolds. Our federal deficit is out of control, expanding at an ever greater rate with administrations of both parties contributing to the mess it has become. A rise in long term interest rates is one of the outcomes.
DOGE (Department of Governmental Efficiency) was an appealing concept with admirable intent...and a nightmare in its thoughtless, arbitrary and capricious execution. Greater use of technology, making the government more efficient, is hard to argue with and very necessary. It is a shame that Musk and his acolytes went for all the attention getting and became so controversial. The US needs to take on this matter in a meaningful, serious way. Failing that, eventually interest rates will rise again, regardless of the economic consequences, because faith in the dollar and the US government’s ability to manage its budget and its debts will decline. Already this week there was a story that noted that Social Security trust funds were going to be depleted sooner than expected, necessitating major benefit cuts. This is just the tip of the looming iceberg.
Ron Johnson, the senior senator representing Wisconsin, is a dyed in the wool Republican and not normally someone that I find myself in agreement with very often, if at all. And yet, I was nodding my head as I listened to a live interview with him earlier this week as he railed against the mistaken number focus of so many of his political colleagues. All they seemed to care about was 51 and 218, the number of votes it would take to get the budget approved…a budget that would greatly expand the deficit and completely ignore the looming issue of the unsustainability of the US deficit.
Traditional Republicans, unlike the current MAGA types, were all about having smaller government, less federal spending, and diminished government regulations and interference. Johnson is very much one of those. I am sure he and I would disagree with what to keep and what to cut, but that is just a negotiation. His insistence that the House and the Senate are not looking meaningfully at the actual numbers is correct. It is completely irresponsible, the results unsustainable. We need to reduce the deficit, shrink our national debt. There are social programs that are ineffective, there are military expenditures that the Dept. of Defense doesn’t even want, there are government subsidies to profitable energy companies, price supports that end up in the coffers of rich agricultural interests, Medicaid rules that enable the states to game the system at the expense of the federal government, etc.
I may have some of this wrong in the specifics, however the larger point is unassailable - US government spending is out of control. Johnson wants the budget to be reviewed line by line and the waste wrung out of the system. He is right – the current focus is on the wrong numbers, the votes for passage, inevitably resulting in just kicking engagement with the bigger issue down the road. The numbers to be focused on should be the amounts and items in the budget, not simply the votes to get another irresponsible budget approved.
At the moment, the long term impacts of our profligate spending and ever larger deficits are vague, somewhere in the indeterminate future. However, once they come into clearer focus, it may be too late to effectively manage the situation without some very painful impacts. Effectively addressing the matter will take sacrifice from many quarters and a sense of patriotic commitment to the well-being of future generations. It will not be easy or without some serious arguments and disputes and yet it should not be ignored just because it will be difficult.
Several issues ago, I distributed an interview of Mark Rowan by Andrew Ross Sorkin. Despite his billionaire status, Rowan’s suggestions did not favor the wealthy at the expense of the multitudes. Since most of you often do not often open up the attachments, I am going to give you this link again. It is by no means a perfect solution…it is, however, a useful proposal to stimulate thinking and discussion on the matter, a meaningful effort of which is long overdue. Please read it and start thinking - the issue needs to be one that all responsible citizens acknowledge and push for some action on.
It is the official start of summer, the solstice occuring last night. The weather finally is beginning to feel like summer. I hope everyone gets a chance to enjoy it.