Trump & Elon fight over how to kill the middle class
Deficits actually matter when Wall Street wants austerity
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We can best understand what happened between Elon Musk and Donald Trump last week as a crystal clear moment of imperial decline. Empires draw resources from peripheral, subject populations and redistribute them to privileged populations in their cores. In classical empires, this was done with military conquest and forced tributes. Over the last six decades the United States has pursued a more sophisticated approach.
The fruits of this approach show up in the two figures each most vexing to Trump and Musk: the U.S. trade deficit and federal budget deficit, respectively. Together these have been the mechanisms for delivering the surplus which allows the United States to live beyond its means -- literally the definition of a deficit.
U.S. consumers buy more from the rest of the world than they produce, sending dollars abroad.
The federal government then spends more than it raises in taxes, issuing bonds to cover the shortfall.
Those dollars around the world come back to buy those bonds, a safe way to store the cash those countries will need for the rest of their trade, also settled in dollars. As long as the dollar remains the primary global reserve currency, the merry-go-round should spin indefinitely.
The U.S. government delivers that surplus to its propertied classes through the very policies most responsible for the deficits pissing off Elon right now: tax cuts, entitlement programs, and military spending. Tax cuts have gone largely to the wealthy, though middle class Americans pay lower taxes than peers in other developed countries. Entitlements and military spending directly underwrite the middle class.
Entitlements let middle class wage earners save less and spend more, with bond investors covering for their ultimate retirement. And they benefit even more richly from military spending -- pensions, healthcare, subsidized housing, and free education for veterans, as well as millions of jobs created by arms manufacturing and related industries. Keeping commodities cheap by overthrowing nationalist governments in the Third World and crushing socialist movements that might threaten markets further underwrites everyone’s family budgets.
Most important of all: the dollar system arose as the spoils of military conquest in the middle of the Twentieth Century, and like all previous currency systems reflects the dominance of U.S. military power in the decades since. Now that the United States can’t beat even Yemen, however, it begs the question of how much longer this system can rely upon that claim.
Beyond the military question, it gets harder every day to imagine future growth paying for the country’s swelling debts. Trump’s trade policy threatens to make things worse both by throttling that growth and slowing the flow of trade dollars abroad. Bond investors bet against future solvency by demanding a premium for longer-term bond purchases, raising yields. 30-year Treasuries have cracked 5% and stayed near there in the months following Trump’s “Liberation Day” performance.
Now the markets’ single largest shareholder has made capital’s message unmistakable: deficits matter now, and he’s willing to loudly insult his erstwhile friend, the president, to make his point.
This marks an historic shift. Deficits take a beating on the campaign stump -- families have to balance their budgets, so why shouldn’t Washington? -- but the truth is that nobody actually wants to pay for balanced budgets. Only Bill Clinton ran any surpluses over the last 50 years, and Wall Street fretted at the time that this threatened the financial order: the “peril of zero debt,” as then-Fed Chairman Alan Greenspan termed it. Presidents that reduce deficits are the ones who pay a political price: Bush the elder in 1992 after breaking his “read my lips, no new taxes” pledge to pass a deficit reduction package, or congressional Democrats in 2014 following Obama’s “sequestration” austerity.
But now markets are calling in the Empire’s line of credit. They expect the United States to liquidate its middle class, as its imperial surfeit no longer covers their costs.
Lost inflows move their way up the class ladder, starting with the poor and ending -- very much against their will -- with the rich. The United States long ago stopped sharing its bounty with the poor, building new prisons for its underclass, flooding their communities with deadly drugs and guns, and reintroducing homelessness to our society. Policymakers have let the middle class suffer and shrink ever since the 2008 recession. Now the right wing and investor classes plan to smash its foundations. Even if Musk makes up with Trump, he will certainly not give up this demand.
So what happens now? The “Big Beautiful Bill” will pass in one form or another; Trump and congressional Republicans will not allow his 2017 tax cuts to expire. This would ease the deficit, but at the expense of the wealthy and they will be last to pay, remember. That leaves spending cuts to offset a deficit now unacceptable to capital -- entitlements and the military. Defense industry executives and investors are also at the end of the line when it comes to these costs, leaving retirees and the disabled to foot the bill. We should expect historic cuts to entitlement programs and a new era of austerity.
Musk’s most important role right now: providing congressional Republicans with political cover to make those votes. Loud, public demands from the apex right wing business hero and his throngs of loyal fanboys give members an alibi when asked why they kicked old white ladies off their Medicare.
Oh, and Elon's DOGE sojourn proved that they can’t make any real dent in the deficit with just discretionary spending cuts. Entitlements it will be for the austerity fiends.
The only thing able to stand in their way: a political movement with exactly the opposite priorities. This means hiking taxes on capital, slashing military spending, expanding social spending to support all working families and eradicate poverty, and cooperating with the rest of the world for shared development, not dominance and extraction.
The fact that a billionaire calling the president a child sex predator in the name of austerity feels more realistic -- and the fact that the he’s right -- says all we need to know about the future of the U.S. middle class.
Disclaimer
Our only investment advice: Zone out to Boylei.
Let us know in the comments if you have any feedback or perspectives to share!
I'm liking it! Viewpoints of dollar hegemony as being backed by Military Socialism are few & far between, especially since the US military is being shown as a... "paper tiger".