After months of tense negotiations in Congress, President Trump signed off on a multi-trillion dollar tax and spending bill named 'Big and Beautiful' this morning on American Independence Day.
👉The goal is to offset tax cuts and massive spending increases for the military and border security by cutting spending on social welfare programs, health insurance, and food for low-income individuals.
Ignoring the debate over who in American society truly benefits, if only considered from a financial economic perspective, supporters believe the bill will boost growth and create more jobs.
Conversely, critics are concerned that this approach risks pushing the U.S. into a spiral of public debt, eroding the nation's financial health and undermining confidence in the financial markets.
The reason is that despite cutting spending, the proposed grand bill is expected to increase the national debt of the United States by an additional $3.1-3.5 trillion over the next 10 years (currently at over $36 trillion).
With the bold fiscal policy of the Trump administration, the short-term impact is clearly a large budget deficit, due to the massive tax cut bill combined with the impact of tariffs in recent times.
How will the Trump administration solve this problem to ease concerns as the public debt continues to swell?
The most plausible solutions outlined by billionaire Ray Dalio:
1️⃣ Significantly or comprehensively cut spending to limit the deficit
2️⃣ Significantly raise taxes to increase revenue
3️⃣ Print more money and uncontrollably devalue the USD (the worst option as it negatively impacts bonds and the credit market)
4️⃣ Push interest rates down to very low levels to support new borrowing and repay old debt
No option is perfect, but President Trump has likely chosen option four by continuously urging and using all means to pressure Powell to lower interest rates. He even actively sought a more 'dovish' replacement for the Fed Chair to cut rates immediately and significantly - from the current 4.25-4.5% down to 1%.
Treasury Secretary Scott Bessent is also urgently urging Republican lawmakers to pass the debt ceiling increase by the end of July.