Burn, Baby, Burn: Trump's Plan to Make America Burn by Lighting Inflation Back on Fire

Trump was apparently so impressed with the searing inflation that his widespread stimulus checks set up back in 2020 that he is now contemplating a repeat stimulus program that will be even bigger. Trump stated a couple of times in the last 24 hours or so that he thinks it would be a grand idea to give 20% of the savings in government expenses that DOGE achieves directly back to American taxpayers as stimulus checks, never mind that whatever DOGE does accomplish is likely to amount to much less than the current government deficit, so there isn’t going to be any surplus to distribute. It’s really just a choice to continue to run a higher deficit than we would have to if we applied 100% of the savings to reduce our enormous overspending.

Instead of cutting back government spending all the way to a balanced budget, Trump would prefer to give out 20% of the savings as candy for some popularity points, but that’s not the worst part. If he follows through with this stated desire, we are back on the path to the same high inflation achieved last time because his tariffs will create the other side of the equation that always assured escalating inflation rates—creating too much money in the face of too few supplies. Last time, lockdowns assured the shortages; this time, much broader tariffs, if actually carried out will assure shortages.

The Trump dump

One liberal economist has joined me in claiming a deep recession and inflation are coming this year. While that is not the company I would like to keep, the reality spoken of in the article will have to be faced because it’s essentially math. The economist’s concern is that Trump’s huge government job cuts are going to start a deep recession. I stated in my predictions for 2025 that the attempt to rectify decades of bad government policy all in a few months time will definitely crush the economy like a bug for exactly that reason.

The article begins,

This is going to be very, very bad.

While I think cutting government way back is essential, there is no escaping the very, very real consequences, which is where this economist is now speaking out to say the same thing I said a couple of weeks ago. (See “TEN 2025 ECONOMIC PREDICTIONS as America's Great Wrecking Ball Wipes out Huge Swaths of the Economy Every Hour of Every Day.”)

It’s just math. You cannot cut hundreds of thousands of government jobs along with tens of thousands of government contracts that result in hundreds of thousands of additional non-government jobs lost without creating a huge recession. Even if you do massive deregulation to boost US business expansion and create new factories and new jobs and try to drive business back to the US with tariffs, those benefits will take years to play through, so they won’t help at all with the present job cuts that will start hitting next month. No billionaires are going to start building factories when the Trump Tariffs might all blow away with the next administration. And when they are convinced it is safe to start, it typically takes years to get them approved and build them. Even if the billionaires decide to start building right now, it’s unlikely the could get new factories or expansions built in time to create jobs in the next few years. That is where I say this is a wrecking-ball policy. It’s not strategically metered out in time to align the benefits with the initial economic destruction. Not even close.

The economist spells out exactly those points, which are some of the ones I laid out in that Deeper Dive of economic predictions:

"It seems almost unavoidable at this point," Rothstein wrote, "that we are headed for a deep, deep recession."

"The March employment report (to be released April 4) seems certain to show bigger job losses than any month ever outside of a few in 2008-9 and 2020," the professor wrote in his multi-post thread. "Add on to that enormous private market uncertainty — how could you hire in these conditions? — and this is going to be very, very bad."

The secondary economic knock-on effect noted by this economist matches what I wrote in my Deeper Dive, too, which is that a massive surge in unemployment results in a huge downscaling of consumer purchases because fired people do all they can to trim their budgets, and people afraid of being fired down the line also do the same thing to prepare for possible leaner times. That creates a feedback loop that causes even more indirect unemployment and, therefore, even more personal budget trimming, virtually guaranteeing a deeper recession.

It does not appear to me that Trump even begins to grasp all of that.

Moreover, the huge decline of the economy over the course of a year also results in far less tax revenue. All the lost income due to government unemployment plus the collateral unemployment siphons out of the government income-tax coffers, hampering the amount by which the original cost-cutting can actually reduce the deficit due to the dynamic relationship between broadly expanding unemployment and tax revenues. So, you don’t wind up with anywhere near the dollar-for-dollar savings that Musk has been crowing about.

More people getting unemployment benefits while no longer producing anything keeps money flowing to some extent, even as production diminishes. The expanding cycles of unemployment will take months—maybe a couple of years or more—to finish working through the labor force in widening circles:

As Rothstein points out, "I worry that [the US Office of Personnel Management] itself doesn’t yet know how many workers were fired. It may be some time before it can report accurately to the [Bureau of Labor Statistics]."

But the ripple effects of major hiring freezes could be "very large," he argued. "Universities and others are already instituting hiring freezes."

In fact, reporting may become even more flawed than it was during the Bidon epoch because the Bureau of Lying Statistics will have even fewer liars on the payroll, not that I’ll miss their ill-conceived misguidance. Just expect it to get even worse in the chaos.

There is no doubt, with credit agencies already sounding alarms on the US government’s ability to manage its debt now that it struggles just to keep covering the interest costs, that major cost-cutting has to happen; but that doesn’t mean we get to ignore the fact that the time has come to pay the piper, and the payment will be very steep. I’ve said for years we’d find ourselves facing this problem … and that the longer we avoided it, the worse it would be when we finally get to where we cannot avoid it because it crashes.

Chances are, it won't be pretty, even according to Musk himself.

The billionaire said during a campaign stop for Trump just ahead of the election that America would likely be in for some financial "hardship" … should he begin trimming the fat, as he saw it.

"We have to reduce spending to live within our means," Musk said, seemingly using the royal we to refer to the hoi polloi despite being a billionaire himself. "And, you know, that necessarily involves some temporary hardship, but it will ensure long-term prosperity."

I have written for years about the need to eliminate the deficit, but Musk is underplaying the pain, perhaps because he is not the one who’s going to feel it. He may take some big financial hits, given that a lowering tide lowers all boats, but he obviously will be doing so on a deep-harbor luxury yacht. The rest of us better get ready for some rocky grounding and listing onto our sides as the tide goes way out from our more humble moorings.

The wrecking-ball approach to downsizing government is certain to make the pain a lot more severe than it might have been if we had a more calibrated approach because I have no doubt that we are also eliminating some jobs (like those nuclear workers) by an error that will add to the unintended consequences of turning the biggest economic decisions of our lifetimes over to a gang of high-school pimple poppers. You can be a very bright nerd about computer stuff and not have an ounce of experience with real-world economics, the realities of massive unemployment, etc. You can, in other words, be computer-smart but not the least bit wise.

So expect wide rings of unintended consequences on top of the pain we would have had if we used a carefully timed approach that made sure the benefits aligned somewhat in time with the pace of corrections. Of course, Trump wants to make sure to get in all the corrections he can while he has the power because you certainly can’t trust anyone down the road to continue seeing them through. Nor do we have much time left. Regardless, the haphazard approach will make the pain worse.

The billionaire boys’ club

Some conservatives are ready to trust the billionaire club that is running the government right now via their high-school-age geek squads because they are infatuated with billionaires. I’m not infatuated with billionaires or their ability to save the rest of us after decades of “trickle-down economics” that never did trickle down, nor do I envy them at all. As Steve Bannon points out for those conservative hopefuls, the “oligarchs will abandon them”:

Those oligarchs – and people on CNN are gonna understand it – just like they’ve turned on you [CNN] now, right? They’ve abandoned the progressive left. They will abandon us and do the same thing. They seek power. Right now, their feeling is they can see the math and they see that we have a built-in coalition. So they’re with us – but only temporarily.

That’s right. They serve themselves. They are not principled men because, during the Biden administration, all their principles clearly ran to doing Biden’s bidding in censoring people like me at Google The Washington Post Facebook, etc. in order to keep in Biden’s good graces so they could keep building wealth for themselves. While Musk didn’t go along with the rest of the billionaire boys on that, Bannon uses his harshest criticism of Madman Musk:

“[Musk] wants to impose his freak experiments and play-act as God without any respect for the country’s history, values, or traditions,” he said in an interview with UnHerd this week while calling Musk a “parasitic illegal immigrant.”

Who can forget the hundreds of thousands of people Zuckerberg sent to Facebook jail for speaking the truth about COVID-19 or for speaking out about Biden’s scandals? Those aren’t principled men. They are opportunists looking to seize the opportunities of the moment for themselves like capable robber barons always do.

Principled men (or women), speak out against bad ideas and bad actors, no matter which side of the political divide those actors stand on. They write things that cause them to lose an audience that doesn’t want to hear the same kind of criticism that the audience reveled in when it was directed at the prior administration. However, unprincipled men, such as Zuckerberg, go wherever the money flows and change their principles accordingly so they can use their money to buy power and influence to make more money.

So, the billionaires and their boys will make sure that all the government cuts inure to their advantage, whether they do to yours or not.

The trouble with tariffs

To make all those job cuts at the same time you impose tariffs actually doubles down on the trouble you will have to work through. This change in government was going to be enormously hard without having to fight global tariff wars at the same time. Those are being stacked on top with the worst possible timing. The sweeping government cuts and the broad tariff impositions are two very different large-scale economic wars.

We were somewhat immune to inflation under Trump’s first tariff trade war because the tariffs were implemented when the Fed couldn’t create inflation to save its life, even after trying for ten years with monetary stimulus of near-zero interest rates and massive money printing (QE). In the present world, the tariffs will work like another article describes below now that we are in an environment where we can no longer even manage to lower the inflation we’ve already created and actually see it rising on its own just because the Fed has backed off a meager amount on its tightening of the brakes:

President Donald Trump’s plan to hit imports from foreign countries with sweeping reciprocal tariffs could nearly double U.S. inflation if fully imposed, a study said, intensifying a recent resurgence in consumer price increases.

“My view is it would mean a real shock to the American economy,” said Gary Hufbauer, an economist and senior fellow at the Peterson Institute for International Economics. “Quite a bit of inflation….”

The tariffs would be so far-reaching—intended to match foreign taxes, subsidies and other trade barriers—that imposing even a significant portion of them could notably boost consumer prices, especially if tacked onto the flurry of other import levies Trump has announced.

"U.S. reciprocal tariffs will be a big deal," Capital Economics titled a note to clients on Friday.

The reciprocal tariffs will be set to match up, not just to other nation’s tariffs, but to other nation’s value-added taxes, and that is where they will be quite expensive for Americans, even though Europe does deserve to see its own exports to America throttled back:

After tossing in VATs, American imports would be socked with a total tariff of 29% if they’re from India, 28% from Brazil, 25% from the European Union, 23% from Mexico and 19% from Canada.

In the current world where inflation is already rising from the last stimulus checks, the combination of new stimulus checks with new high tariffs is highly combustible. Tariffs tend to raise prices because businesses pass the tariffs they have to pay to the fullest extent they are able as part of their “cost of goods sold.” Couple that with the fact that tariffs tend to create product shortages by suddenly reducing the inflow of imported retail goods, parts, and resources before replacements have been secured, and you have a situation highly prone to be inflationary. Do all of that when we are already in a smoldering world of inflation where the embers are still glowing brightly from the last inflation you lit on fire, and it means any introduction of oxygen or new fuel is highly likely to blow up.

Reciprocal tariffs amp up the inflation fuel a lot more than the original tariffs ever could have because …

Reciprocal tariffs would pose a distinctive challenge for U.S. businesses. With other types of tariffs, companies often could skirt the fees by switching their goods imports from countries such as China that are hit by high U.S. duties to other Asian nations.

“If it’s the entire world” that’s burdened with large tariffs, “it becomes a lot harder to avoid,” Weidner said.

Tariff wars, as I said last time Trump started them, go better if you only start a trade war with one nation at a time, so you do big hurt to that one nation while leaving yourself loads of other supply options; but when you impose tariffs on all nations that have unbalanced trade taxes with the US at the same time, you have no choice but to pay more for almost everything produced outside the country. Because you choke off a lot of alternative supply options all at once, you also place huge new price pressures on the scarce remaining supplies that are not up to handle the volume. So, this will be a super-heated tariff environment.

Of course, how bad all of this gets will depend entirely on how far Trump actually goes with his tariff threats the speed at which he moves from nation to nation, and how many nations he hits at the same time. We don’t know how far or fast he’ll go, but right now, the speed and breadth appear significant. If he actually does all he is saying he will, it will be …

Burn, Baby, burn!