Can the United States really out-grow its debt? It's a loaded question that begins with a talk about inflation.
When Americans talk about inflation, their concerns depend on where they sit.
For low- and middle-income families, inflation is felt in consumer prices: higher costs for groceries, gas, and rent that outpace wages and erode quality of life.
For wealthier Americans and academics, inflation is a broader and more complex picture, encompassing asset prices, the dollar’s purchasing power, and the performance of low-risk portfolios for savers and retirees.
Both forms of inflation have been rising in recent history, creating a dual burden on the economy. But Trump’s return to the White House and his economic team’s strategies could signal a new path forward—one that breaks from Keynesian orthodoxy and targets growth to outpace debt, even if certain types of inflation are allowed to persist.
How We Got Here
Over the past 50 years, the U.S. has followed a Keynesian path:
Currency debasement and massive deficits drove short-term stimulus but left long-term structural weaknesses.
Outsourcing and low interest rates kept consumer prices low but suppressed wages for American workers.
A focus on financialization and housing fueled asset price inflation while concentrating wealth in a few industries like high tech.
Even when the government invested in infrastructure, much of it went toward unscalable technologies (e.g., early-stage renewables) or bureaucratic programs that lacked immediate productivity gains.
During this time, China pursued a different path, demonstrating that:
Money printing does not automatically lead to consumer price inflation if investments are carefully targeted at the supply side.
Building infrastructure, lifting wages, and maintaining low production costs can foster economic growth while keeping prices stable.
The contrast between these approaches underscores why the U.S. debt—now larger than GDP—has reached unsustainable levels. Interest payments alone are crowding out productive spending, and the fiscal system is increasingly vulnerable to shocks.
The Debt Crisis: A Looming Reckoning
The debt is no longer an abstract concern; it is reshaping the financial landscape:
Interest as a Budget Burden: Rising rates mean interest payments now consume a growing share of federal spending, leaving less for defense, infrastructure, or innovation.
Wealth Management Concerns: Institutions like JPMorgan are rethinking their strategies, advising clients to diversify beyond fixed income due to inflationary pressures and fiscal instability.
Paul Tudor Jones’ Take: The famed investor has outright rejected fixed income, citing the debt’s unsustainability and its implications for long-term growth.
For Trump 2.0, the path forward requires addressing the deficit through reform and attacking the debt by growing the economy faster than it grows.
Growing Out of the Debt: What It Means
Trump’s strategy, according to his team, centers on two key goals:
Deficit Reform: Cutting waste and improving government efficiency to reduce unnecessary spending.
Debt Outgrowth: Expanding GDP faster than the debt through targeted investments and supply-side expansion.
This strategy is not without precedent. Historical examples—like post-war financial repression—show how targeted growth policies can mitigate high debt levels. However, Trump’s approach reflects a modern twist:
Supply-Side Investments: Instead of focusing on stimulus for consumer demand, the administration plans to invest in scalable, productive industries like energy, manufacturing, and advanced technologies.
Targeted Deregulation: Reducing barriers to growth for critical industries, from energy production to digital finance.
Labor and Infrastructure Alignment: Supporting skilled workforce development to ensure the labor market keeps pace with reindustrialization efforts.
Cutting Unproductive Spending: Trump's team and DOGE seem dead-set on cutting waste in the federal government, but cutting too much government spending could impact GDP. That means that they need to be careful to increase GDP more than they cut any GDP-boosting federal spending.
Inflation in the New Era
Here’s where the two lenses of inflation come into play:
Consumer Price Inflation: The administration aims to keep prices for goods like energy and food low by:
Leveraging domestic energy production to stabilize costs.
Investing in infrastructure to address supply-side bottlenecks.
Avoiding monetary debasement that erodes purchasing power.
Crucially, the strategy seeks to ensure that working-class wages grow faster than consumer prices, providing real gains for everyday Americans.
Asset Price and Monetary Inflation: On the flip side, we can expect:
Asset price inflation as markets respond to new investment flows and growth-focused policies.
Moderate monetary inflation as the dollar weakens slightly to support exports and industrial growth.
In essence, not all inflation is created equal. By controlling consumer prices while allowing moderate monetary and asset inflation, the administration seeks to balance growth with stability.
The Levers of Change
The administration’s strategy for growth relies on coordinated action across key policy areas and figures. This vision came into sharp focus during a recent announcement with SoftBank CEO Masayoshi Son. Standing alongside Trump and Commerce Secretary Howard Lutnick, Son pledged to invest $100 billion in the U.S. for AI infrastructure and related projects. This announcement is more than just a headline—it embodies the administration’s focus on fostering private-sector partnerships to drive scalable growth.
AI, manufacturing, and energy will form the backbone of these efforts. Commerce Secretary Lutnick will oversee policies that make the U.S. a welcoming hub for industrial and technological investment, while Treasury Secretary Scott Bessent balances currency management to support exports. Meanwhile, OMB Director Russ Vought and DOGE (Department of Government Efficiency) leaders Elon Musk and Vivek Ramaswamy will streamline government operations, cutting waste and unlocking resources for productive investments.
Small business growth will complement these top-down initiatives. SBA Administrator Kelly Loeffler will focus on empowering entrepreneurs, ensuring that small and medium-sized businesses benefit from the economic shift. Together, these levers represent a holistic approach to growing GDP, controlling inflation, and ultimately reducing the debt burden.
Conclusion: Inflation, Growth, and the Path Ahead
The Trump administration’s focus on growing out of the debt represents a clear break from Keynesian orthodoxy. By prioritizing supply-side expansion, industrial investment, and government efficiency, it seeks to tackle inflation and debt simultaneously—though not all types of inflation will disappear.
For low- and middle-income Americans, the promise is stable prices and rising wages. For wealthier investors and institutions, the landscape will likely favor growth- and industry-focused assets over traditional fixed income.
As the administration navigates these challenges, its success will hinge on one key question: Can it grow GDP fast enough to outpace the debt? The answer will determine not only the future of the economy but also the global role of the United States in a rapidly shifting world.
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