Washington Republicans Need to Wake Up on Deficits

The clock is ticking on America’s debt crisis…

Will unserious Republicans in Washington risk the broad America First agenda, because they refuse to confront the realities of mathematics and deficits?

To put this issue into broader political context, first recognize that the early accomplishments of the Trump Administration have simply been astounding. Within only weeks, President Trump delivered on his signature promise, gaining effective law enforcement control of the US border, the foundational pillar of his triumphant campaign.

Then, his historic trip to the Middle East elevated the America First foreign policy vision of realism and restraint. President Trump reshapes American foreign policy, away from the failed DC Establishment approach of constant interventions and warfighting.

These landmark achievements, they arrive just four months into office.

As we rightly celebrate these wins for all Americans, we also confront the challenges of the economy Trump inherited from Biden. Across the land, palpable anxiety and financial stress are revealed in all credible national surveys. Bidenomics crushed the spirits -- and pocketbooks -- of working-class Americans…and they still suffer now.

For instance, my national survey in April found that by a -12% margin, Americans are now less confident on the economy since last November’s election, 40-52%. Among middle class Americans who earn $50,000-$75,000 annually, the numbers are much worse, with only 37% reporting they are more confident economically vs. 56% who say they are less confident since the election.

So, the economy poses serious risks for all Washington Republicans -- and this negative energy threatens to overwhelm the astounding early victories of the Trump White House.

Unfortunately, this harsh reality is almost totally ignored by Republican decision makers in the Beltway, who lack any sense of urgency. In fact, they now stumble along with Biden-like budget plans that will keep America on a sad trajectory toward a debt implosion.

Accordingly, Moody’s downgraded US debt, in a surprise move. The ratings agency explained that it can no longer view the US government as the highest possible credit rating:

“Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits….As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.”

Understandably, some Republicans in Washington have attacked Moody’s as biased, especially the firm’s virulently anti-Trump economist Mark Zandi. But for all of Moody’s flaws, it is not wrong in this particular. well-explained analysis.

For example, the firm correctly points out that, at current trends, Speaker Mike Johnson’s budget framework will lead to annual deficits at 9% of GDP by 2035, from 6.4% today…worlds away from the laudable 3% goal of Treasury Secretary Scott Bessent.

Here is a long-term 25-year chart view of total federal debt relative to GDP – note this calculus reflects the entire federal debt, not a one-year annual deficit:

Making matters worse, as spending grew out of control, interest rates shot higher under the misery of Bidenomics, making the costs of servicing the debt increasingly untenable. For example, as economist EJ Antoni of Heritage Foundation points out, right now debt services costs are the largest expenditure of the federal government, even more expensive than the Defense Department – and interest payments now consume an astounding 63% of all federal income taxes paid!

Moreover, bond markets respond unhappily to the current trend of budget negotiations on Capitol Hill. Here is a near-term chart Treasuries in recent weeks, once that legislative process intensified:

Regarding bonds, realize the historical power of fixed income markets. Bond traders have, for centuries, taken out as many governments and regimes as battleships.

Right now, the cantankerous US bond market prices-in continued, stubborn inflation ahead, undoubtedly in large part because of the incredible profligacy of Capitol Hill Republicans. See this chart of the “breakeven” which uses bond prices to reflect actual macro, real-money bets on inflation:

That chart is based on trillions of dollars of invested capital, mind you. It reflects mountains of real money, invested by the sharpest minds in finance, and not the opinion of some economist, opining from the faculty lounge of an ivory tower university.

Of course, these realities are conveyed by other key markets, as well. Crypto assets soar, as investors flee fiat currencies, including the US Dollar, in search of alternatives that can thrive in this volatile era. Similarly, the oldest “alternative” asset on earth – gold – it continues to catapult higher, an ominous overall sign:

Now for some good news. There are fixes, and realistic ones. I will detail them in a follow-up article.

But, the range of options constricts materially with each passing day, and the odds of a true all-out debt crisis creep higher every hour. As such, we cannot cater to a fantasy – we simply cannot afford to waste time pretending that this debt calamity will magically go away without aggressive reform and steely-eyed action.

Steve Cortes is president of the League of American Workers, a populist right pro-laborer advocacy group, and senior political advisor to Catholic Vote.

He is a former senior advisor to President Trump and JD Vance, plus a former commentator for Fox News and CNN.