Why has Musk announced he will use 5% of his personal assets of $390 billion, which is $19.5 billion, to establish a third party, the American Party, because of this bill?
1️⃣
What does the final version include?
1) Increase the debt ceiling by $5 trillion, with the current debt to GDP ratio at around 120%;
2) Extend the 2017 tax cut law set to expire at the end of this year, including individual provisions for child tax credits, corporate provisions for R&D expenditure deductions, etc., with a total tax cut scale of $4.5 trillion.
3) Repeal Section 899 (taxing investment income from countries and enterprises that impose 'unfair taxation' on the US), alleviating concerns about capital outflows.
4) Cut expenditures on electric vehicles, healthcare, and food vouchers.
2️⃣
How significant is the impact of the deficit?
The final bill is expected to increase the basic deficit by $3.4 trillion over the next 10 years, with the total deficit including interest payments amounting to $4.1 trillion, which is higher than the earlier version from the House of Representatives (basic deficit of $2.4 trillion).
According to CBO's forecast, the deficit for the fiscal year 2026 is expected to increase by about $479 billion, but thanks to annual tariff revenues of $300 to $400 billion that can offset most of it, the deficit ratio will slightly rise from 5.2% in fiscal year 2025 to 5.9%, which will not be a significant increase.
3️⃣
What is the impact on the US economy?
In the second half of the year, the credit cycle may recover on a month-on-month basis. Although the overall fiscal expansion is not significant (most of it continues from previous tax reforms rather than new measures), the month-on-month change shows that compared to the low base in the first half of the year, the fiscal impulse improves to 0.6% in the second half.
Moreover, with AI investment continuing to accelerate, the recovery of traditional private sector demand (such as real estate) after the Federal Reserve cuts interest rates will lead to a recovery in the US credit cycle from the low point in the first half of the year. This is not yet considered a widely accepted consensus and is based on a grand narrative of 'de-dollarization,' prompting attention to the possibility of the dollar strengthening in the fourth quarter, leading US stocks to outperform again. Outlook for the second half of 2025: the consensus on 'de-dollarization.' The recent new highs in US stocks also strongly support the return to historical highs.
In fact, the same was true in 2017. Although the launch of policies and key milestones were not completely aligned, the overall trajectory has a 'similarity in different tunes': Trump's trade warmth (November 2016 - February 2017) → trade reversal (March 2017 healthcare reform failure) → trade restart (September 2017 tax reform passed).
4️⃣
What does it mean for major assets?
After calculations, the resolution of the debt ceiling and the new deficit will bring about $900 billion to $1 trillion in bond issuance demand in July-September (with a bond issuance scale of $1 trillion from July to September 2023), and coupled with inflation rising in July-August due to base and inventory factors, it cannot be ruled out that interest rates may spike.
US stocks are similar; after rebounding from the bottom and returning to historical highs, they may also be affected by interest rate increases and tariff negotiations. However, we remain optimistic; the position is just uncomfortable, and while there are these disturbances, fluctuations may actually bring allocation opportunities. Both US stocks and US bonds are related to the # relationship between the dollar and US stocks.