Latest news with #US3.3
The Age
5 days ago
- Business
- The Age
Why America may never be great again
America's government finances are about to get a lot worse. The 'One Big Beautiful Bill Act' currently before the US Senate, with its extension of Trump's 2017 tax cuts, would add more than $US3.3 trillion to that debt within a decade and (because the spending measures are front-loaded, with expenditure cuts deferred) about 1.8 percentage points to the US debt-to-GDP ratio in its first year. Concern about the increase in debt the bill would generate, along with the chaos created by Trump's tariffs, have already caused US bond yields to rise significantly and produced some weakness in demand in auctions of bonds with longer durations. Bond investors want to be compensated for the perceived increase in risk of holding bonds for 20 or 30 years. The demand versus supply challenge created by the sheer volume of debt the market is being asked to absorb is exacerbated by the changes to US bank regulation that were made after the 2008 financial crisis. Loading Dimon's reference to market makers relates to the requirement that banks hold capital and liquidity against risks, with Treasury securities treated no differently to other assets. In a crisis, and a big short falling demand for a US bond issue, the banks, as 'primary dealers,' would be expected to step up and fill the void, but those requirements might prevent them from doing so. The Trump administration has raised the prospect of bank deregulation, with the 'supplementary leverage ratio,' which requires banks to hold a minimum 3 per cent of common equity relative to their total assets, likely to be lowered. Dimon isn't the only senior Wall Street figure worried about the potential for an implosion in the bond market. Speaking at the same Reagan National Economic Forum in California as Dimon, former Goldman Sachs president and Trump adviser in his first term, Gary Cohn, said that the US has 'the most robust debt market in the world, until we don't.' 'If there lacks interest from foreign investors, and there lacks interest from US will move out dramatically. 'One or two auctions later, you could be in a completely different system. 'And then, when the government gets to a point where it can't efficiently finance itself, we have a completely different position. And when we're there, it's almost too late to deal with,' he said. The White House, of course, isn't concerned, arguing that growth from its tax cuts and spending will grow the economy at a rate will resolve the threat of rising deficits and debt and shrink the deficit and debt ratios. The Treasury Secretary, Scott Bessent, pushed back against criticism of the One Big Beautiful Bill Act impact on the deficits and debt. 'This bill is going to create growth. I'm not worried about the US debt dynamics because a change in the growth trajectory takes care of a lot of that, he said, predicting that, within a year, the US economy will be growing at more than 3 per cent. That might be somewhat optimistic. Trump's tariffs, if he is allowed by the courts to impose them, or finds other mechanisms for doing so, will subtract from growth. It is also the case that the $US4 trillion-plus of tax cuts aren't actually stimulatory cuts, but an extension of the 2017 tax cuts that were scheduled to expire in December. Their extension might avoid what would otherwise be contractionary tax increases, but it is stretching it somewhat to see them as turbocharging growth. There's also, given the nervousness of investors, particularly foreign investors, about the Trump administration's love of destabilising tariffs and the blow-out in government spending that would occur if the One Big Beautiful Bill is enacted, another potentially destructive element in the legislation. Section 899 of the bill would enable the US Treasury to impose penalties on foreign investors or companies by imposing punitive income and withholding taxes on them – up to 20 percentage points on their US investments – if the US deems their governments have imposed unfair taxes on US companies. Loading The European Union, the UK, Canada, Australia and others with valued-added taxes (our GST) or digital sales taxes would be obvious targets. Section 899 would apply to dividends, the interest on corporate (and possibly government) bonds and corporate profits and would also apply to the holdings of sovereign wealth funds that are currently exempt from taxes. There's already a 'Sell America' trade underway. Even as US bond yields have risen, the US dollar has fallen almost 10 per cent this year, a reversal of the normal correlation. Trump's trade wars and the expected spending binge and deterioration in America's public finances – a prospect that saw the US lose its last AAA credit rating last month – are the reasons there have been outflows of capital from the US this year. If Section 899 were enacted – or if foreign investors thought it was likely to be enacted – there would be a real exodus of capital from the US. Interest rates would spike even more and investment and growth would shrink. The prospect of US Treasury calling a bond auction where no-one turned up would strengthen. If no-one wants to buy US assets, or are scared away from the US markets and economy by the administration's policies, the dollar won't remain dominant and America will never be great again. Trump and his administration want to bully the rest of the world. They want to dictate other countries' trade, tax and social policies while still seeking their investment – indeed, demanding that they invest more – to 'make America Great Again.' They risk being shunned by the rest of the world and its capital, with unpleasant consequences for America's public finances, its economy and for the dominance of the US dollar that has underpinned the transmission of American power throughout the globe. Loading If no-one wants to buy US assets, or are scared away from the US markets and economy by the administration's policies, the dollar won't remain dominant and America will never be great again.
Sydney Morning Herald
5 days ago
- Business
- Sydney Morning Herald
Why America may never be great again
America's government finances are about to get a lot worse. The 'One Big Beautiful Bill Act' currently before the US Senate, with its extension of Trump's 2017 tax cuts, would add more than $US3.3 trillion to that debt within a decade and (because the spending measures are front-loaded, with expenditure cuts deferred) about 1.8 percentage points to the US debt-to-GDP ratio in its first year. Concern about the increase in debt the bill would generate, along with the chaos created by Trump's tariffs, have already caused US bond yields to rise significantly and produced some weakness in demand in auctions of bonds with longer durations. Bond investors want to be compensated for the perceived increase in risk of holding bonds for 20 or 30 years. The demand versus supply challenge created by the sheer volume of debt the market is being asked to absorb is exacerbated by the changes to US bank regulation that were made after the 2008 financial crisis. Loading Dimon's reference to market makers relates to the requirement that banks hold capital and liquidity against risks, with Treasury securities treated no differently to other assets. In a crisis, and a big short falling demand for a US bond issue, the banks, as 'primary dealers,' would be expected to step up and fill the void, but those requirements might prevent them from doing so. The Trump administration has raised the prospect of bank deregulation, with the 'supplementary leverage ratio,' which requires banks to hold a minimum 3 per cent of common equity relative to their total assets, likely to be lowered. Dimon isn't the only senior Wall Street figure worried about the potential for an implosion in the bond market. Speaking at the same Reagan National Economic Forum in California as Dimon, former Goldman Sachs president and Trump adviser in his first term, Gary Cohn, said that the US has 'the most robust debt market in the world, until we don't.' 'If there lacks interest from foreign investors, and there lacks interest from US will move out dramatically. 'One or two auctions later, you could be in a completely different system. 'And then, when the government gets to a point where it can't efficiently finance itself, we have a completely different position. And when we're there, it's almost too late to deal with,' he said. The White House, of course, isn't concerned, arguing that growth from its tax cuts and spending will grow the economy at a rate will resolve the threat of rising deficits and debt and shrink the deficit and debt ratios. The Treasury Secretary, Scott Bessent, pushed back against criticism of the One Big Beautiful Bill Act impact on the deficits and debt. 'This bill is going to create growth. I'm not worried about the US debt dynamics because a change in the growth trajectory takes care of a lot of that, he said, predicting that, within a year, the US economy will be growing at more than 3 per cent. That might be somewhat optimistic. Trump's tariffs, if he is allowed by the courts to impose them, or finds other mechanisms for doing so, will subtract from growth. It is also the case that the $US4 trillion-plus of tax cuts aren't actually stimulatory cuts, but an extension of the 2017 tax cuts that were scheduled to expire in December. Their extension might avoid what would otherwise be contractionary tax increases, but it is stretching it somewhat to see them as turbocharging growth. There's also, given the nervousness of investors, particularly foreign investors, about the Trump administration's love of destabilising tariffs and the blow-out in government spending that would occur if the One Big Beautiful Bill is enacted, another potentially destructive element in the legislation. Section 899 of the bill would enable the US Treasury to impose penalties on foreign investors or companies by imposing punitive income and withholding taxes on them – up to 20 percentage points on their US investments – if the US deems their governments have imposed unfair taxes on US companies. Loading The European Union, the UK, Canada, Australia and others with valued-added taxes (our GST) or digital sales taxes would be obvious targets. Section 899 would apply to dividends, the interest on corporate (and possibly government) bonds and corporate profits and would also apply to the holdings of sovereign wealth funds that are currently exempt from taxes. There's already a 'Sell America' trade underway. Even as US bond yields have risen, the US dollar has fallen almost 10 per cent this year, a reversal of the normal correlation. Trump's trade wars and the expected spending binge and deterioration in America's public finances – a prospect that saw the US lose its last AAA credit rating last month – are the reasons there have been outflows of capital from the US this year. If Section 899 were enacted – or if foreign investors thought it was likely to be enacted – there would be a real exodus of capital from the US. Interest rates would spike even more and investment and growth would shrink. The prospect of US Treasury calling a bond auction where no-one turned up would strengthen. If no-one wants to buy US assets, or are scared away from the US markets and economy by the administration's policies, the dollar won't remain dominant and America will never be great again. Trump and his administration want to bully the rest of the world. They want to dictate other countries' trade, tax and social policies while still seeking their investment – indeed, demanding that they invest more – to 'make America Great Again.' They risk being shunned by the rest of the world and its capital, with unpleasant consequences for America's public finances, its economy and for the dominance of the US dollar that has underpinned the transmission of American power throughout the globe. Loading If no-one wants to buy US assets, or are scared away from the US markets and economy by the administration's policies, the dollar won't remain dominant and America will never be great again.
AU Financial Review
28-05-2025
- Business
- AU Financial Review
Middle East's Nvidia demand could add $1trn to AI market boom
Demand for Nvidia chips from the Middle East could add another $1 trillion to the global artificial intelligence market, according to analysts as they waited for the last of the magnificent seven tech stocks to file quarterly earnings reports on Thursday. Wedbush managing director Daniel Ives, an influential tech sector analyst, said he expected AI spending from Saudi Arabia and the United Arab Emirates to 'fill the void' left by China for the $US3.3 trillion ($5.1 trillion) valued chip maker, after Nvidia's founder Jensen Huang accompanied US President Donald Trump on a four-day visit to the Gulf earlier this month.
The Age
19-05-2025
- Business
- The Age
The Trump alarm bells are ringing louder
'Over the next decade, we expect larger deficits as entitlements spending rises while government revenue remains broadly flat. 'In turn, persistent, large fiscal deficits will drive the government's debt and interest burden higher. The US fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.' US government debt has ballooned over the past decade. It was just under $US20 trillion when Donald Trump first took office but had swollen to $US27.7 trillion by the start of the Biden administration, with Trump's 2017 $US4.5 trillion 'Tax and Jobs Act' the major influence. It is now $US36.2 trillion, thanks to Biden's massive spending on climate-related concessions, infrastructure spending and his CHIPS and Science Act. In March, the Congressional Budget Office released its projections for US debt and deficits, saying the deficit would reduce from last year's 6.4 per cent of GDP to 6.1 per cent over the next decade. Debt would, however, rise from 98 per cent of GDP in 2024 to 118 per cent in 2035. More recently, it has factored in the One, Big, Beautiful Bill. That would, it says, increase annual deficits from $US1.9 trillion to $US2.9 trillion in 2034, or 6.9 per cent of GDP, or potentially as much as $US3.3 trillion and 7.8 per cent of GDP if some measures in the bill, which are scheduled to expire at the end of Trump's term, were to be made permanent. (Some of the 'temporary' measures are only temporary to try to make the bill look less profligate, while others look like an inducement for his supporters while he is in office, with their expiry his successor's problem). Debt would increase by $US3.3 trillion by 2034 – $US5.2 trillion if the spending measures were made permanent – or to 125 per cent of GDP (129 per cent if permanent). Annual interest costs would rise between $US1.8 trillion (4.2 per cent of GDP) and $US1.9 trillion (4.4 per cent of GDP). In other words, this big, beautiful bill would take a fiscal position which, in any economy without America's privileged position would already be unsustainable, and make it worse. Moreover, given that Trump's tax package is highly regressive – the wealthy would continue to benefit significantly while lower income households see little or no benefit – it would exacerbate inequality. Moody's, while cutting America's rating, awarded the US a stable outlook because of a history of effective monetary policy led by an independent Federal Reserve, the constitutional separation of powers and America's unique status and the world's dominant reserve currency provider. Those attributes are being tested by the current administration. Loading Trump has routinely slammed the Fed and its chairman, Jerome Powell, threatened to sack Powell (until the markets' reactions caused him to back off) and is expected to insert his own nominees into the Fed at every available opportunity. He would subvert the Fed's independence if he thought financial markets would let him. With Trump effectively ignoring Congress and governing via executive orders, many of which have dubious legal or constitutional authority, and disregarding Supreme Court orders on immigration, the separation of powers doctrine in the US is being tested by his administration. The US dollar is the world's reserve currency, but it has depreciated by more than 8 per cent against a basket of its major trading partners' currencies and there have been indications of capital outflows, or at least reduced inflows, as a result of Trump's aggressive trade policies. While financial markets have calmed since Trump announced 90-day pauses of his proposed 'reciprocal' tariffs and his 145 per cent tariff on imports on China was reduced (temporarily?) to 30 per cent, before those stays there was a strong 'sell America' mood among foreign investors. Given that Trump's tax package is highly regressive – the wealthy would continue to benefit significantly while lower income households see little or no benefit – it would exacerbate inequality. When the 90-day pauses end the administration is now saying it will replace its 'reciprocal' tariffs, which were supposed to be negotiated trade deals, with unilateral tariffs. 'I own the store (the US economy) and I set prices,' Trump has said. The tariffs, their impact on the US economy and their impact on America's trade partners have the potential to be highly disruptive and negative for the US and the rest the world. They risk a self-induced recession in the US (and deficits and debt that are an even higher proportion of GDP as a consequence) while slowing growth around the world. They also place a questionmark over something of longer-term consequence than the short-term ebbs and flows in economic activity in the US and elsewhere. Loading Trump's 'America First' unilateralism, and his economic illiteracy, has unsettled allies and the investors needed to buy the swelling tide of government debt that the US is already issuing even before the effects of the One, Big, Beautiful Bill start flowing. If Trump's trade war were to cause more capital to flow out of the US than flows in, initially it would result in higher interest costs and bigger deficits and debt than would already be the case. Longer term it could undermine the reserve currency status of the dollar, which is America's greatest financial asset. It helps prevent the US from experiencing the external pressures and the risk of a financial crisis that any other economy with its deteriorating fiscal outlook would be facing. Between them, Trump's tariffs and the One, Big, Beautiful Bill will reshape America's economy and society, not necessarily in a way that Americans expected when they voted last year, and not necessarily for the better. Indeed, the risks are heavily weighted to the downside.
Sydney Morning Herald
19-05-2025
- Business
- Sydney Morning Herald
The Trump alarm bells are ringing louder
'Over the next decade, we expect larger deficits as entitlements spending rises while government revenue remains broadly flat. 'In turn, persistent, large fiscal deficits will drive the government's debt and interest burden higher. The US fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.' US government debt has ballooned over the past decade. It was just under $US20 trillion when Donald Trump first took office but had swollen to $US27.7 trillion by the start of the Biden administration, with Trump's 2017 $US4.5 trillion 'Tax and Jobs Act' the major influence. It is now $US36.2 trillion, thanks to Biden's massive spending on climate-related concessions, infrastructure spending and his CHIPS and Science Act. In March, the Congressional Budget Office released its projections for US debt and deficits, saying the deficit would reduce from last year's 6.4 per cent of GDP to 6.1 per cent over the next decade. Debt would, however, rise from 98 per cent of GDP in 2024 to 118 per cent in 2035. More recently, it has factored in the One, Big, Beautiful Bill. That would, it says, increase annual deficits from $US1.9 trillion to $US2.9 trillion in 2034, or 6.9 per cent of GDP, or potentially as much as $US3.3 trillion and 7.8 per cent of GDP if some measures in the bill, which are scheduled to expire at the end of Trump's term, were to be made permanent. (Some of the 'temporary' measures are only temporary to try to make the bill look less profligate, while others look like an inducement for his supporters while he is in office, with their expiry his successor's problem). Debt would increase by $US3.3 trillion by 2034 – $US5.2 trillion if the spending measures were made permanent – or to 125 per cent of GDP (129 per cent if permanent). Annual interest costs would rise between $US1.8 trillion (4.2 per cent of GDP) and $US1.9 trillion (4.4 per cent of GDP). In other words, this big, beautiful bill would take a fiscal position which, in any economy without America's privileged position would already be unsustainable, and make it worse. Moreover, given that Trump's tax package is highly regressive – the wealthy would continue to benefit significantly while lower income households see little or no benefit – it would exacerbate inequality. Moody's, while cutting America's rating, awarded the US a stable outlook because of a history of effective monetary policy led by an independent Federal Reserve, the constitutional separation of powers and America's unique status and the world's dominant reserve currency provider. Those attributes are being tested by the current administration. Loading Trump has routinely slammed the Fed and its chairman, Jerome Powell, threatened to sack Powell (until the markets' reactions caused him to back off) and is expected to insert his own nominees into the Fed at every available opportunity. He would subvert the Fed's independence if he thought financial markets would let him. With Trump effectively ignoring Congress and governing via executive orders, many of which have dubious legal or constitutional authority, and disregarding Supreme Court orders on immigration, the separation of powers doctrine in the US is being tested by his administration. The US dollar is the world's reserve currency, but it has depreciated by more than 8 per cent against a basket of its major trading partners' currencies and there have been indications of capital outflows, or at least reduced inflows, as a result of Trump's aggressive trade policies. While financial markets have calmed since Trump announced 90-day pauses of his proposed 'reciprocal' tariffs and his 145 per cent tariff on imports on China was reduced (temporarily?) to 30 per cent, before those stays there was a strong 'sell America' mood among foreign investors. Given that Trump's tax package is highly regressive – the wealthy would continue to benefit significantly while lower income households see little or no benefit – it would exacerbate inequality. When the 90-day pauses end the administration is now saying it will replace its 'reciprocal' tariffs, which were supposed to be negotiated trade deals, with unilateral tariffs. 'I own the store (the US economy) and I set prices,' Trump has said. The tariffs, their impact on the US economy and their impact on America's trade partners have the potential to be highly disruptive and negative for the US and the rest the world. They risk a self-induced recession in the US (and deficits and debt that are an even higher proportion of GDP as a consequence) while slowing growth around the world. They also place a questionmark over something of longer-term consequence than the short-term ebbs and flows in economic activity in the US and elsewhere. Loading Trump's 'America First' unilateralism, and his economic illiteracy, has unsettled allies and the investors needed to buy the swelling tide of government debt that the US is already issuing even before the effects of the One, Big, Beautiful Bill start flowing. If Trump's trade war were to cause more capital to flow out of the US than flows in, initially it would result in higher interest costs and bigger deficits and debt than would already be the case. Longer term it could undermine the reserve currency status of the dollar, which is America's greatest financial asset. It helps prevent the US from experiencing the external pressures and the risk of a financial crisis that any other economy with its deteriorating fiscal outlook would be facing. Between them, Trump's tariffs and the One, Big, Beautiful Bill will reshape America's economy and society, not necessarily in a way that Americans expected when they voted last year, and not necessarily for the better. Indeed, the risks are heavily weighted to the downside.
