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By: Vincent Deluard, Director - Global Macro Strategy
Talking Points:
To the extent that K-pop lyrics have meaning, Blackpink’s shutdown is about a Lamborghini going “vroom, vroom, vroom” during a shutdown, which serves as an analogy for the vibrancy of the US economy amidst the political circus.
This report will argue that the three engines of unrestrained government spending, wealth effect-charged consumer spending, and political rate cuts are boosting US economic growth. The cracks in private lending are real, the economy’s dependence on the AI bubble is worrying, a few low-end consumers are squeezed, but US economic growth is still going “vroom-vroom-vroom”, as illustrated by the Atlanta Fed’s GDPNow estimate of 3.9%.
The US government spent $6.2 trillion this year, 8% more than over the same period last year. Despite DOGE, an 8% surge in income tax collections, an expected $260 billion in capital gains taxes, an extra $200 billion in tariffs, and the ongoing shutdown, the deficit should increase by about $100 billion this year. At the local level, states’ general fund spending should rise by 5.1% in fiscal 2025 as higher-than-expected tax collections have allowed 22 states to increase spending in their mid-year budget actions. The One Big Beautiful Bill’s tax cuts and the surge in defense and border spending will add stimulus in 2026, and Trump promised to send tariff rebate checks ahead of the midterms.
TSA crossings, OpenTable reservations, same-store sales, and credit card spending suggest that consumer spending accelerated in the past two months. Households should collect an extra $1.2 trillion in gig income and capital gains this year, which will more than offset losses from lower Medicaid enrolment, the resumption of student loan payments, and the DOGE layoffs. Unemployment benefits paid by the Department of Labor dropped by 2% this past quarter, their first decline since April 2023. The recent bad job numbers were the result of the closure of the border and the crackdown on illegal immigration, rather than mass layoffs of American workers.
The third part will explain my belief that the calculation of inflation, the sharing of seigniorage, and monetary policy are core attributes of sovereignty. Independent experts cannot determine the pace of wage growth, the optimal level of deficits, or how to share productivity gains. Constant shocks have broken the Phillips curve, and tracking prices has become much harder in an economy that is dominated by intangible assets, complex services, and AI-driven prices.
Finally, record-low junk bond spreads, soaring stock prices, and gold’s extraordinary rally prove that monetary policy is very accommodative. Rate cuts, the end of quantitative tightening, the simultaneous acceleration in M2 in Europe, Asia, and the US, financial deregulation, and the rebound in inflation will further ease financial conditions in the coming months. Enjoy the growth surge and buy inflation protection...
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