From: allin
Scott Bessant, the 79th Secretary of the Treasury, outlines the administration’s multi-pronged approach to address the US fiscal deficit, debt levels, and overall economic policy [00:02:30]. This strategy aims to foster sustainable economic recovery, increase affordability for Americans, and address the “Main Street versus Wall Street” dichotomy [00:11:23] [00:13:39].
Current Economic Challenges and the Biden Administration’s Policies
Bessant expresses alarm at the Biden administration’s approach to the national debt and deficit [00:12:06]. He criticizes “endless stimulus, endless spending” [00:12:12] during a period of solid economic standing, noting it was the “first time ever” such spending occurred outside of wartime or recession [00:12:21]. He views this as cynical, believing it would lead to an unavoidable need for tax increases, pushing the U.S. towards a “European style social democracy” [00:12:31].
A significant concern raised is the “Main Street versus Wall Street” dichotomy, where government policies disproportionately benefited those with assets [00:13:39] [00:14:13]. While asset holders saw their wealth inflate, the cost of living (CPI and “everyman index” [00:14:30]) rose significantly for those without assets, leading to “meaningful wage suppression” [00:13:23] and “eviscerated the middle class” [00:13:48]. This contributed to a loss of purchasing power and hindered the American Dream, making homeownership and financial security increasingly difficult [00:16:36].
Proposed Economic Plan for Deficit Reduction
The administration aims to implement a three-pronged plan to address US economic challenges and fiscal responsibility [00:21:50]:
Government Deleveraging and Efficiency
The primary goal is to “delever the government via the spending” [00:26:10] by cutting federal spending in a controlled manner to avoid a recession [00:22:24] [00:22:47]. The target is to return to a long-term average deficit-to-GDP ratio of 3% to 3.5% by 2028 [00:23:14] [00:23:16]. It’s emphasized that the U.S. has a spending problem, not a revenue problem, with federal revenue averaging around 18% of GDP, while Biden administration spending reached 25% (compared to a normal 21-21.5%) [00:23:27] [00:23:40].
Part of this deleveraging involves shedding excess labor from the government, with the expectation that these individuals will be absorbed by a more productive private sector [00:26:16] [00:26:47]. This is part of the “Department of Government Efficiency” initiative, rather than “government extinction,” aiming to run government better with fewer people and costs [00:45:07] [00:45:10]. Key areas for savings include contractors, who are seen as deeply entrenched and contributing to “grift” [00:45:49] [00:46:28].
Deregulation of the Financial System
The financial system is described as being in a “regulatory corset” [00:26:28]. The plan is to deregulate it to allow the private sector to “relever” [00:26:35]. This includes reexamining all bank regulations, particularly those affecting community and small banks, which bear the same capital requirements as large institutions despite less complexity [00:33:08] [00:33:29]. Regulators are incentivized to keep “tightening the corset,” not to promote growth [00:34:11] [00:34:16]. Deregulation aims to boost private lending, especially from small banks, which are 70% of all loans and 40% of small business loans [00:35:43] [00:35:54].
The Treasury, through FSOC (Financial Stability Oversight Council) and the President’s Working Group, plans to push for “safe, sound, and smart deregulation” [00:37:51] [00:38:10]. An example is removing the supplementary leverage ratio, which imposes a capital charge on banks for holding Treasury bills, potentially lowering Treasury bill yields by 30-70 basis points [00:38:26] [00:38:42].
Reordering International Trade and Tariffs
The second plan is to reorder the international trading system and bring manufacturing jobs back to the U.S. to reinvigorate the middle class [00:27:47] [00:27:55]. This involves using tariffs to encourage other countries to align and create economic incentives for reshoring industries and supply chains [00:28:06] [00:28:13].
Tax Policy and Economic Growth
The administration seeks to renew the current tax regime [00:31:14]. The theory is that tax cuts and deregulation will significantly increase economic growth, moving the trend line from 1.8% to 3% or higher [00:29:51] [00:29:54]. Combined with flat or reduced expenses, this accelerated growth can increase government revenue overall, even with a lower tax rate, and help reduce the deficit [00:30:10] [00:30:30].
Affordability and Energy Costs
Addressing affordability is a key component. This involves examining where prices can be reduced and how to increase real wages for working people [00:27:20] [00:27:39]. Cheap energy is considered a critical part of this holistic program, as it lowers overall costs for transportation, food, and manufacturing [00:28:45] [01:09:10] [01:10:33]. The administration plans to appoint an “affordability czar” with supply chain experience to identify quick fixes [01:08:46] [01:08:51].
Other aspects of affordability include:
- Housing: Addressing scarcity caused by tight zoning laws and outdated building codes. The aim is to promote more modular and standardized housing construction to reduce costs and speed [01:04:17] [01:04:49]. Mandating municipalities allocate vacant land for multi-family housing, similar to a Connecticut law, is a potential strategy [01:06:29].
- Insurance: Exploring federal involvement in reinsurance markets to mandate proper hygiene changes in building codes and brush cutting, especially in high-risk areas [01:07:16].
- Energy Security: Emphasizing energy security through cheap energy production to support manufacturing competitiveness and technological supremacy (e.g., AI) [01:10:33] [01:10:56]. Promoting a diverse energy mix, including hybrids (in contrast to the Biden administration’s “jihad on hybrids” [01:10:14]) and nuclear power, which requires supply chain and regulatory fixes [00:59:00] [01:10:14].
Challenges and Implementation
Congressional Action and Government Spending and Budget Issues
Achieving deficit reduction requires Congress to act decisively [00:25:09]. Republicans are seen as disciplined in their fiscal approach, driven by President Trump’s influence [00:41:17]. However, there’s a recognition that spending cuts cannot happen all at once, as every $300 billion cut represents about 1% of GDP [00:25:46]. The goal is to “land the plane” [00:25:53] carefully. A major challenge is the incentive structure where elected representatives are rewarded for securing funds for their constituents, leading to earmarks and resistance to cuts [00:31:51] [00:32:37].
Federal Reserve and Monetary Policy
The Treasury supports the Federal Reserve’s autonomy in monetary policy [00:36:24]. However, Bessant believes the Fed has been “much too harsh” on smaller and medium banks with regulations [00:37:21]. He also notes the Fed’s slowness in responding to inflation [00:16:04].
Data Reliability
There is skepticism about the reliability of government economic data (e.g., GDP, non-farm payrolls), which can be subject to large revisions and potentially used to justify policy decisions rather than reflect true economic sentiment [00:20:01] [00:20:14] [00:20:38]. The Biden administration is criticized for refusing to acknowledge the “vibe session” of public feeling, instead relying on numbers that didn’t align with the American people’s experiences [00:20:51].
Interest on Debt
The accumulated national debt, nearing 1.2 trillion per year [00:24:39] [00:24:46]. This consumes a growing portion of the federal budget, making spending cuts even more challenging and painful [00:24:52]. The Treasury’s past policy of issuing short-term debt when rates were low is seen as a mistake, leading to a difficult refinancing challenge [00:39:00] [00:39:18].
Long-Term Visions
Sovereign Wealth Fund
The administration is exploring the creation of a U.S. sovereign wealth fund, inspired by models like North Dakota’s and Alaska’s permanent funds [00:53:52] [00:54:06]. The aim is to “mobilize the asset side of the balance sheet” [00:54:26] by utilizing federal assets such as energy leases and government-owned land [00:54:41]. The fund would invest for the benefit of all Americans, providing participation in the economy rather than just holding retirement funds as loans to the government [00:52:32] [00:52:45]. This aligns with the goal of creating assets for the American people, not just debt [00:53:18].
IRS Modernization
The Treasury aims to modernize the IRS with three goals: revenue enhancement, privacy, and customer service [00:49:10]. The plan involves addressing inefficiencies, such as the 24/7 staffing of help desks regardless of demand [00:48:28], and using technology like AI to streamline tax filing and reduce waste, fraud, and abuse [00:49:24]. It also seeks to address concerns about politically motivated audits, with whistleblowers providing insight into how audits are triggered [00:50:02] [00:50:13].
The overall vision emphasizes long-term growth and stability, recognizing that the benefits of these policy changes, particularly in job creation and affordability, may take time to materialize [00:44:50].