Markets Should Be Worried About US Budget Deficit, Millstein Says

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00:00It's split programming, though, because at the same time that these issues are being debated,

00:05that Mike Johnson, Speaker Johnson, is going on media saying that it's the Democrats' fault.

00:09You also have Caroline Levitt, the White House press secretary, going on Fox literally at the same time

00:14saying that they're going to look at across-the-board layoffs,

00:18that the White House is using this as an excuse to fire people.

00:21Usually when these moments of tensions, when government shutdowns happen,

00:25people are just like, whatever, they'll figure it out, it won't have an impact.

00:28Is this time different, especially because of the fragility of the economy right now?

00:33You know, it's a little bit like Blazing Saddles.

00:37They've got a gun pointed at their own head.

00:39They're the chief executive officer of the country, right?

00:42They're going to need people to run the programs that reflect their priorities.

00:47So, you know, the threat to fire people who would help them implement their agenda seems a little empty to me.

00:54It does seem like just a threat, right?

00:56I mean, I know that President Trump has run time and again on shrinking the federal government,

01:02but it doesn't seem like this Republican Party really wants to shrink the federal government.

01:06Okay, they have 150,000 deferred resignations from the Doge movement,

01:13but if they were really going to fire more federal workers,

01:17wouldn't they take advantage of this moment and do it,

01:19rather than just threatening to do it time and time again?

01:23And we're going to do Democrat things and it's going to be very bad and not actually carrying through?

01:28You know, in the 1890s, there was a major civil service reform in the United States

01:33to prevent the kind of cronyism and patronage that previously prevailed.

01:38And so, you know, they can threaten to do mass firings,

01:43but there are procedures that they have to go through that were enacted, you know, 130 years ago

01:50and have been subsequently revised and amended.

01:53But, you know, they can't just do this unilaterally.

01:57That's the, you know, the problem the president is facing is that he is eager to act unilaterally

02:04and show that, you know, he's forcefully in charge.

02:08But it's a government of laws, not men.

02:11Well, tell that to Clarence Thomas, right?

02:13I mean, he just recently said that he doesn't put a lot of faith in precedent.

02:17It could have been an orangutan making that decision.

02:19You know, this Supreme Court seems eager to allow the president much more executive power.

02:27No, there's no question about it.

02:28But notwithstanding that, the Congress has a role to pass budgets, to govern trade, right?

02:41I mean, so the president has, you know, allegedly cut eight or nine deals with major countries

02:46on his universal tariffs.

02:48None of that's in writing.

02:49It's all press releases.

02:51He's allegedly got, you know, a couple of trillion dollars of investment from these countries.

02:56Again, nothing's in writing.

02:58Nothing's agreed.

03:00And why?

03:02Because the Court of International Trade, which has an original jurisdiction over the statute

03:08under which he's imposed these tariffs, has said he's exceeded his authority.

03:13That was appealed to the district court in D.C.

03:16They concurred in the International Trade Court's opinion.

03:20It's going to be heard at the Supreme Court on November 5th.

03:23The whole, this whole tariff regime that he's imposed could disappear with the Supreme Court

03:28decision.

03:29Now, as you've said, the Supreme Court seems eager to expand the powers of the president.

03:33And we need that money.

03:34But the powers of the president, in this case, derived from an act of Congress.

03:39And these kinds of tariffs have never been imposed under that act.

03:44It's kind of the strange thing, because if you had said on April 2nd that these tariffs

03:50would be struck down by the courts, markets would have celebrated.

03:53This time around, any time we've gotten an inkling, it is a bond market that sold off.

03:57It used to be inflation that concerned us about the tariffs.

03:59Now it's, we need this in order to cut the deficit.

04:02Okay, so that's the, that's, so go back to the one big beautiful bill.

04:07You know, that we came into 2025 running a $1.7 trillion deficit.

04:14That's about 6% of GDP.

04:16So, you know, when the government is deficit spending, it's goosing the economy.

04:21The one big beautiful bill, although, you know, there's a lot of moving parts and pieces,

04:26increases that deficit, for sure, with the exception of the offset of the tariffs.

04:32But since the tariffs have not been enacted by Congress, it's not incorporated into the CBO's forecast,

04:39because it's unsure, the CBO, that these tariffs are actually enforceable.

04:45Besant has claimed that at the current run rate, the tariffs will generate $300 billion of revenue in 2026.

04:52You know, that will, that might offset the incremental tax cuts that were incorporated into one big beautiful bill,

05:03but it's not going to close the deficit in any meaningful way.

05:07So that's why I think the bond market is, should be a little nervous about what the government is doing,

05:14because as Chair Powell has said, and I've said here before, you know, the, the debt is sustainable at the level we're at,

05:22but the deficits are not.

05:23We cannot keep doing this.

05:25We cannot keep doing this.

05:26We cannot keep doing this.

05:27We cannot keep doing this.

05:28We cannot keep doing this.

05:29We cannot keep doing this.

05:30We cannot keep doing this.

05:31We cannot keep doing this.

05:32We cannot keep doing this.

05:33We cannot keep doing this.

05:34We cannot keep doing this.

05:35We cannot keep doing this.

05:36We cannot keep doing this.

05:37We cannot keep doing this.

05:38We cannot keep doing this.

05:39We cannot keep doing this.

05:40We cannot keep doing this.

05:41We cannot keep doing this.

05:42We cannot keep doing this.

05:43We cannot keep doing this.

05:44We cannot keep doing this.

05:45We cannot keep doing this.

05:46We cannot keep doing this.

05:47We cannot keep doing this.

05:48We cannot keep doing this.

05:49We cannot keep doing this.

05:50We cannot keep doing this.

05:51We cannot keep doing this.

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