Can Anything Be Done to Reduce U.S. Budget Deficits/Debt and Alleviate Geopolitical Tensions?


By the Curmudgeon with Victor Sperandeo

U.S. Budget Deficits and the Debt Bomb:

Aid packages for Ukraine and Israel will push the U.S. budget deficit to $1.9 trillion this year, up from $1.5 trillion predicted in February. The U.S. deficit is about double the pre-pandemic level even though the nation is not at war and no longer in a health crisis. What’s so alarming (but rarely mentioned by the MSM) is that the deficit and debt are growing rapidly amid unexpectedly strong economic growth, which usually helps bring deficits down.  That’s very bad, but it will get worse. What me worry?

If present trends continue, the debt in 2027 will equal 106.2% of annual economic output [1.], according to the latest forecast from the nonpartisan Congressional Budget Office. That would slightly exceed the all-time high of 106.1% of gross domestic product in 1946, a year when the United States was still demobilizing from World War II and had not begun paying down the massive borrowing needed to fund a global military effort. From that point until the 1970s, Federal debt as a percentage of GDP decreased almost every year because of relatively small deficits, an expanding economy, and unanticipated inflation.

Note 1.  Social Security is included in "intra-government debt," but it’s not part of GDP (or are other government transfer payments). That is to prevent money spent by Social Security recipients from being double counted in GDP.


Over the next 10 years, the annual deficit is projected to swell to $2.9 trillion. As a share of the economy, debt held by the public in 2034 will be 122% of gross domestic product, up from 99% in 2024.

A graph showing the number of the us and the us gross domestic product

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Note: Fiscal year 2024 and beyond are Congressional Budget Office estimates.

Source: Congressional Budget Office June 2024 update


Neither President Biden or GOP presumptive nominee Donald Trump have outlined any plan to lower government spending and thereby decrease humongous budget deficits. Astonishingly, there’s almost no discussion of debt in the presidential campaign. If anything, the two leading candidates are promising to do things that could make it worse.

 Former president Donald Trump is touting tax cuts. President Biden is pushing more spending, along with potential tax increases that would not realistically offset it. Both candidates added substantially to the debt during their terms in the White House due largely to expenditures to fight the pandemic. But Mr. Trump’s tax cuts also reduced revenue by nearly $2 trillion, over a 10-year period, while Mr. Biden has increased spending on infrastructure, industrial policy and student debt relief.

“Republican officials are already plotting to grow the deficit even more in 2025 with tax handouts to the corporations who are keeping prices high even as inflation falls, “said Andrew Bates, a White House spokesman.

“At a moment we should be looking at what spending to reduce and how to increase revenue, the national agenda is full of conversation about huge new tax cuts and major spending initiatives,” Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, told The Washington Post. “The risks that we run from this growing mountain of debt run the gamut from slower economic growth to lower incomes, an inability to respond to emergencies and a weaker role in the world. Nothing could be more urgent, but none of our leaders have a plan to address this glaring problem.”

More student loan forgiveness (which the Curmudgeon opposes) adds to the deficit but won't impact cash flows right away. Experts say the macroeconomic environment is stable, but the rising deficit and student loan forgiveness add pressure.

Medicare and Social Security are running low on funds, which could force a benefit cut for tens of millions of Americans just as the national debt crescendos.

Impact on Credit Markets

The U.S. Treasury’s shift to short-term debt financing might disrupt money markets. The U.S. Treasury will soon issue $150 billion more debt, mostly through Treasury bills. This will raise the total stock of Treasury bills to $6.2 trillion by year-end, causing funding market concerns if there are not enough buyers (which are mostly money market funds).  The last time T-bill demand was low, lending rates spiked over 10%. This could happen again, according to Josh Belanger.

A person sitting at a table with money and calculator

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Chart Courtesy of Josh Belanger


Also, bond yields are likely to rise with the increased supply of Treasury’s. The CBO forecasts that annual U.S. debt servicing (interest) costs will rise to $1.7 trillion in 2034 from $892 billion this year. At that point, the U.S. would be spending about as much on interest payments as it does on Medicare.

“The harmful effects of higher interest rates fueling higher interest costs on a huge existing debt load are continuing, and leading to additional borrowing,” said Michael Peterson, chief executive of the Peter G. Peterson Foundation, which promotes fiscal restraint. “It’s the definition of unsustainable.”

Senator Chuck Grassley of Iowa, the top Republican on the Senate Budget Committee, said that President Biden was responsible for high borrowing costs and called for spending cuts. 

-->The Curmudgeon and Victor wholeheartedly agree!

June 27th Presidential Debate:

The presidential debate this week may be interesting and cause some market movement.  Rather than watch the polls, which are worthless propaganda watch the Real Clear Politics betting odds on who will win. Currently, Trump is an overwhelming favorite.

While we don’t expect any talk on spending cuts or the deficit, we are hoping there is serious talk about ending the wars in Gaza and Ukraine as well as rising tensions with China.     

One truly remarkable fact about Thursday’s debate is that the combined ages of Biden and Trump (81+78=159) is 68% of the age of the U.S. (=235), which was established in 1789 when the U.S. constitution was put into operation.

Geopolitical Risks:

Victor sees the greatest geopolitical risks as:

1.     The non-stop talk of war against Russia by the U.S. and NATO due to the ongoing 28-month war in Ukraine.

2.     The deep deterioration in relations between the U.S. and China.

The Curmudgeon adds Israel’s multi-front war with Hamas in Gaza and Hezbollah in Lebanon.  Add the exponential rise in antisemitism and unchecked pro-Palestinian protests on college campuses.

-->These worrisome threats to peace are accelerating rapidly.

The Threat from Hypersonic Missiles:

A hypersonic weapon is a weapon capable of travelling at hypersonic speed, defined as between 5 and 25 times the speed of sound or about 1 to 5 miles per second (1.6 to 8.0 km/s).

A graph with a line and a line

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The approximate speed and trajectory, in pink, of a hypersonic glide vehicle weapon, which is boosted into the air and then glides at high speeds to its target, compared with a non-hypersonic cruise missile and a ballistic missile.  Chart Courtesy of the Wall Street Journal.

A Grim Warning about World War III:

President of Serbia Aleksandar Vučić recently warned that World War III is imminent, and it may break out in the next four months. He said this in an interview with the Swiss publication "Weltwoche."

Victor states the obvious: a war between superpowers with nuclear weapons is not winnable. The only survivors, if any, would be the cockroaches.

Have the leaders of western nations completely lost their minds? Not even Gold will save you from these Neo-Con maniacs who promote War. Where is the sanity of our world leaders?

End Quote:

“An evil man will burn his own nation to the ground to rule over the ashes.”  Quote attributed to Sun Tzu from “The Art of War  a cornerstone of military strategy. 

Fact Check: Research by, as well as an in-depth look into the writings of Sun Tzu and ‘The Art of War’, confirm that the above quote is not present in any of Sun Tzu’s known works.


Be well, stay calm, success, and good luck. Till next time…………...

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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