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華爾街面臨的真正巨大頭痛問題 - Sean Williams
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Think President Donald Trump's Tariffs Are Wall Street's Biggest Concern? Then You're Completely Overlooking This Colossal Problem.
Sean Williams, The Motley Fool, 07/06/25
Key Points
* Though volatility is inherent in the stock market, things have been particularly turbulent through the first half of 2025 for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.
* President Trump's tariff and trade policy -- along with the upcoming end to the 90-day pause on higher reciprocal tariffs -- has raised concerns about inflation and economic growth.
* With the S&P 500 and Nasdaq Composite pushing to fresh highs, arguably nothing is of more importance than the quality of corporate earnings.
When examined with a wide lens, no asset class has come particularly close to matching or surpassing the annualized return of stocks. But generating life-changing long-term returns in the stock market often means enduring periods of outsized volatility.
Since December, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and innovation-propelled Nasdaq Composite (NASDAQINDEX: ^IXIC) have been all over the map. After closing at respective record highs between December and mid-February, the Dow and S&P 500 dipped into correction territory by early April. As for the Nasdaq Composite, it entered its first bear market in three years.
Just three months later, the S&P 500 and Nasdaq Composite have achieved fresh record closing highs, with the Dow nearing an all-time high of its own.
Outsized volatility of this magnitude is typically the result of fear and uncertainty from the investing community. While it'd be easy to suggest President Donald Trump's tariff and trade policy is Wall Street's biggest concern, there's actually something much more nefarious (and important) that threatens to drag down the Dow, S&P 500, and Nasdaq Composite.
President Trump's 90-day reciprocal tariff pause is almost over
There's no question that investors have been on edge since Trump introduced his tariff and trade policy after the close of trading on April 2. The two days following the unveiling of his tariff policy led to the S&P 500's fifth-largest two-day percentage decline in 75 years!
Trump's initial announcement introduced a sweeping 10% global tariff and implemented higher "reciprocal tariff" rates on dozens of countries that have historically sported adverse trade imbalances with America.
On April 9, President Trump announced a 90-day pause on reciprocal tariffs (that went into effect on April 10) for all countries except China, which allowed time for trade negotiations to take place. While some trade deals have been signed or agreed upon over the last three months, this 90-day pause is set to end on July 9, which could open up a new can of worms for the U.S. economy.
One of the issues with tariffs is the possibility of worsening trade relations with allies. Even if key trade partners are willing to accept additional tariffs, there's the risk of anti-American sentiment in foreign countries resulting in consumers buying fewer American-made goods.
Another worry with tariffs is the potential for the domestic rate of inflation to pick up. Trump's tariff and trade policy doesn't do a very good job of differentiating between input and output tariffs. Whereas the latter are placed on finished products being imported into the country, input tariffs are affixed to goods used to manufacture/complete products domestically. Input tariffs threaten to reignite the U.S. inflation rate.
Further, based on a Liberty Street Economics analysis ("Do Import Tariffs Protect U.S. Firms?") by four New York Fed economists, public companies with direct exposure to Trump's China tariffs in 2018-2019 had worse future outcomes from 2019 to 2021 than companies with no exposure. On average, sales, profits, employment, and productivity all fell for American companies exposed to the U.S.-China trade war during Trump's first term.
While Donald Trump's tariffs offer a valid reason for investors to be concerned about the stock market, there's a considerably bigger problem at hand that most investors appear to be overlooking.
Is Wall Street's rally built on a house of cards?
The stock market entered 2025 at one of its priciest valuations in history, based on the S&P 500's Shiller price-to-earnings (P/E) ratio. In December, the Shiller P/E hit 38.89, which is the third-highest multiple during a continuous bull market when back-tested to January 1871.
The five previous instances when the Shiller P/E ratio surpassed 30 and held that multiple for at least two months were eventually (keyword!) followed by declines in the Dow, S&P 500, and/or Nasdaq Composite ranging from 20% to 89%. In other words, the stock market has a poor track record of sustaining extended valuations.
The one factor that can support premium valuations is strong growth in corporate earnings. If the publicly traded companies responsible for driving the stock market higher are delivering rock-solid earnings-per-share (EPS) growth, it may be possible to maintain aggressive valuations.
There's just one problem: The earnings quality of these influential businesses is worse than you probably realize.
Ideally, a company's operations should do the talking. But if you dig into the earnings reports of America's most influential businesses, you'll discover a number of ways profits have been (legally) bolstered by non-innovative or unsustainable methods.
For example, I regularly harp on Apple (NASDAQ: AAPL) as a company that's pulled one heck of a legal smoke-and-mirrors trick on its investors. Don't get me wrong, Apple has historically been at the leading edge of the innovative curve, and its iPhone has been the top-selling smartphone in the U.S. since introducing a 5G-capable version in the fourth quarter of 2020.
But Apple's not-so-subtle secret to success has been its world-leading share repurchase program. Since initiating a buyback program in 2013, it has spent $775 billion to retire more than 43% of its outstanding shares.
Between fiscal 2022 and fiscal 2024 (Apple's fiscal year ends in late September), Apple's net income declined from $99.8 billion to $93.7 billion. However, thanks to buybacks and a lower outstanding share count, its EPS fell only from $6.11 to $6.08. It has been able to completely mask a greater than $6 billion decline in net income through buybacks and has seen its share price climb by 53% over the trailing-three-year period, as of July 2, 2025.
But this isn't just a buyback problem masking a lack of growth. We're also witnessing growth stocks rely on unsustainable forms of income as a significant portion of their profits.
Palantir Technologies (NASDAQ: PLTR) has arguably surpassed Nvidia as Wall Street's most-revered artificial intelligence (AI) stock. Palantir's sustainable moat, its multiyear government contracts via Gotham and predictable enterprise subscriptions from Foundry, and its 25% to 35% annual sales growth all point to its EPS growth being driven by its operations.
However, Palantir has consistently relied on interest income earned from its large cash pile to buoy its net income. During the March-ended quarter, 23% of Palantir's $217.7 million in net income was traced back to interest income earned on its cash. This is a notable percentage of its net income coming from an unsustainable and non-innovative source -- and it's particularly egregious, given that Palantir shares are changing hands at 106 times trailing-12-month sales!
Electric-vehicle (EV) maker Tesla (NASDAQ: TSLA) is another perfect example of poor earnings quality in action. Ideally, Tesla's first-mover EV advantages, along with its ongoing shift to diversify its operations into energy generation and storage, are what bolster its bottom line.
Yet, during the March-ended quarter, Tesla's $589 million in pre-tax income derived entirely from unsustainable sources. It generated $595 million from regulatory tax credits sold to other automakers (which it receives for free from governments), as well as $309 million in net interest income, after interest expenses. If not for tax credits and net interest income, Tesla would have reported a $315 million pre-tax loss in the first quarter.
Wall Street is littered with stories similar to this, where companies have relied on unsustainable or non-innovative channels to mask a true lack of growth. With the Shiller P/E pushing to one of its priciest valuations in 154 years, poor earnings quality for America's most influential businesses is what should really worry investors.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.
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美國社會進入「E形」經濟 -- Eleanor Pringle
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請參見：K形經濟造成川普基本盤鬆動 (該欄2025/11/18)。
美國老百姓的經濟情況已經不再適合用「K形」來形容(本欄2026/02/12)；有經濟分析師認為：在經濟能力畫分上，美國社會進入了「E形」的三層等級。
Welcome to the ‘E-shaped’ economy: Wealth gap is no longer between just high and low earners, the middle class is also struggling
Eleanor Pringle, 02/12/26
For the past 12 months, investors and consumers had settled into the idea of a “K-shaped economy.” Be it jobs or spending, the K-shape illustrated a growing divide between the fortunes of the wealthy and everyone else. Those at the top of the pile trended higher, while those already struggling pushed lower.
But new analysis from Bank of America suggests the trajectory of middle-class consumers is now pulling away from those on the lower end of the income spectrum: These consumers aren’t doing as well as wealthy people, but their spending power isn’t as diminished as that of poorer consumers.
A look at BofA’s data shows the shape is no longer a K. If we’re sticking with the alphabet theme, one might suggest an “E” is emerging.
In a note published yesterday by six BofA economists, the group wrote that “income‑based divergence in spending and wage growth persists, and we are concerned that a ‘K’ shape is opening up between higher-income households and middle-income households, alongside the existing gap with lower-income households.”
Citing internal data, the group said that in January the spending growth between higher-income households and all others was at its largest since mid-2022, the height of the COVID-era spending boom. Year-on-year in January, higher-income consumers’ spending growth on credit and debit cards grew 2.5%. Lower-income households grew just 0.3%, while middle-income was relatively flat at 1%.
“A similar pattern is emerging in after-tax wage growth, with the gap between higher- and middle-income households at its largest in nearly five years,” the BofA team added. “While higher-income households’ wage growth was 3.7% YoY in January, a solid improvement from the 3.3% YoY in December, middle-income families’ wage growth saw only a marginal improvement, increasing to just under 1.6% YoY in January from over 1.5% in December.”
While talk of K-shaped economies has become more prevalent during a recent surge in the debate over affordability (and how recessionary the real economy feels, as opposed to growth in concentrated sectors like technology), echoes of a growing divide can be traced back over decades: The Fed began monitoring the distribution of household wealth in Q3 2010, and reported that total wealth equaled $60.76 trillion. Of that, the top 0.1% owned $6.53 trillion, and those in the top 99% to 99.9% percentiles owned $10.75 trillion. By contrast, the bottom 50% shared only $330 billion.
Fast-forward to Q3 2025: The wealth of the bottom 50% has grown by 1,189% to $4.25 trillion—though still significantly behind the wealth held by the top 0.1% even some 15 years prior. The top 0.1% saw their wealth grow 281% to $24.89 trillion, nearly six times the wealth held by the bottom 50% combined.
Savvier consumers
Since the end of the pandemic, Wall Street has been delighted and surprised by the resilience of the U.S. consumer, particularly amid elevated interest rates and a higher cost of living.
When it comes to debt, those at the sharpest end of the economy are struggling: The New York Fed reported this week that while delinquency rates for mortgages are near historically normal levels, deterioration is concentrated in areas that are both lower-income and have declining home prices. That said, while transitions into early delinquency came from mortgages and student loans, all other debt types held were steady.
BofA’s data tells a similar story: The share of households paying off their full credit card balance each month has risen across all incomes and generations compared with 2019. For example, taking an average index reading of 100 for 2019, lower-income young people as of January 2026 resulted in a near-20 point increase. The trajectory is the same, though less pronounced, among Gen X and older generations (baby boomers and traditionalists).
Consumers’ bank balances have been bolstered by factors such as wage growth and lower gas prices, offsetting other inflation. But BofA said shoppers are also being savvier, via the “trading-down” phenomenon. The report said: “Households’ spending growth was much higher at value grocers than at premium grocery stores from 2022 until the beginning of 2025. And while middle- and higher-income households’ spending growth have converged somewhat over the last year, lower-income households’ growth at value grocers has outpaced that at premium grocery stores by around five percentage points for the past three years.”
This story was originally featured on Fortune.com
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中國出售美國債劵之見仁見智 - Samuel O'Brient/Huileng Tan
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Here's what smart people are saying about China's push to cut holdings of US Treasury debt
Samuel O'Brient/Huileng Tan, 02/12/26
* China instructed its banks to reduce US debt holdings, citing volatility and concentration risk.
* Economists debate the economic and geopolitical motives behind China's decision.
* Some commentators flagged the importance of foreign investors in the US Treasury market.
China instructed banks to dial back their holdings of US Treasury debt this week, a move that sparked fresh conversations about "Sell America."
Chinese regulators said the move was related to volatility and concentration risks in US debt, and it wasn't framed specifically as a critique of the dollar-led financial system. Yet, market commentators see it, in part, as an update to a broader geopolitical narrative that's gripped markets in the last year.
Bloomberg reported that China's banks collectively hold $298 billion in US dollar-denominated bonds, though is not known how much of that is made up of US Treasurys versus things like US corporate debt.
The impact on treasury yields has been minimal so far, but economists and market pros say the move raises concerns about future knock-on effects.
Here's what they're saying.
Desmond Lachman, American Enterprise Institute
A senior fellow at the economic policy think tank, Lachman has previously raised concerns about the position of the US as a global economic superpower.
He said this week that he is deeply concerned about what China's decision may mean for the US, particularly as other nations have already begun shifting away from dollar-denominated assets.
"[The US] desperately needs foreigners to keep buying US Treasuries to provide that financing, and the last thing that it needs is for foreigners to start selling their Treasurys," he told Business Insider, adding that foreign investors hold about 30% of the outstanding amount of US Treasurys.
"The drying up of foreign buying of our government's bonds could set us up for a bond market and dollar crisis."
Brad Setser, Council on Foreign Relations
Setster isn't as concerned about the market implications of China's move. He sees the decision as a reflection of China's need to make changes in order to help stabilize its own economy and guard against volatility from the US after struggling in recent years.
"Global investors should consequently be paying much more attention to the flows tied to China's currency management," he advised. "Despite the recent warning, my strong suspicion is that Chinese state institutions will struggle to find good alternatives to the Treasury market if they are buying $50 billion or more in the market a month to control the pace of yuan appreciation."
Jai Kedia, Cato Institute
Kedia, an economist at the libertarian think tank, shares Setser's perspective that investors shouldn't regard China's decision as a geopolitical development. He told Business Insider that while he expects China to continue selling off its US Treasurys, it likely won't yield a sizable negative impact for the US.
"People have a way overestimated opinion of how much value of US government debt China actually holds," he stated. "The value isn't anywhere near enough to crash our markets or anything like that."
Kedia acknowledged that a massive offloading of government bonds would likely impact the market, but he added that he doesn't see that as likely.
Liqian Ren, WisdomTree Asset Management
Ren, who serves as director of modern alpha at asset manager WisdomTree, sees it as more explicitly geopolitical than other commentators.
"The move is largely geopolitical, with financial factors secondary," she said. "China uses US treasury holdings for part of its currency management, making rapid liquidation unlikely. While near-term risks remain low, preparations for potential regional conflict involving Japan or the Taiwan Strait are reinforcing incentives on both sides to reduce financial dependence."
In her view, China isn't likely to be a net buyer of US government debt until the two nations reach an equilibrium.
Yan Wang, Alpine Macro
The market research firm's chief China strategist thinks the regulatory guidance is mostly about risk management. That said, he thinks geopolitical tensions are a factor in China's decision as well.
"China has been reducing its holdings of US assets—particularly Treasurys—in recent years, and the pace has accelerated sharply since Russia's invasion of Ukraine," he said. "Beijing's core strategic objective is to reduce its vulnerability to potential US sanctions under conditions of severe geopolitical stress."
Like Kedia, Wang expects China to continue selling its holdings of US government debt. He claims that US Treasurys account for roughly 20% of China's reserves, likely above the comfort level of its government.
Joe Mazzola, Charles Schwab
Charles Schwab's head trading and derivatives strategist wrote that news adds to fresh "sell America" concerns after a European pension fund recently rattled markets by halting its buying.
"If China follows suit even as Japan's growing economy attracts more assets there, the pressure on Treasuries might advance, sending yields higher and keeping borrowing costs elevated," Mazzola wrote.
He advised investors to track demand via Treasury auctions and US macroeconomic data, which could influence expectations for Federal Reserve policy.
Jeremy Mark and Josh Lipsky, Atlantic Council
Analysts at the Atlantic Council wrote that news of the directive raises questions about its timing and intent, especially since the directive had reportedly been in place for weeks before becoming public.
They noted the news came days after Qiushi, a Chinese Communist Party journal, published a 2024 speech by Chinese leader Xi Jinping. In the speech, Xi called for the internationalization of China's currency.
The fact that both developments emerged within a week was "too conspicuous to ignore," particularly given ongoing market and policy dynamics in Washington and New York.
The analysts also suggested the leak may have been intended as a message to Washington — and specifically to Treasury Secretary Scott Bessent — after he publicly referenced rumors of Chinese gold-backed digital assets and linked recent volatility in gold prices to China.
"But wherever the dust settles in the near term, the longer-term trajectory seems clearer. China's ambitions to reduce reliance on the dollar will continue, and the Chinese government will keep finding ways to make life a little more difficult for the United States — and the dollar — wherever it can," they wrote.
Read the original article on Business Insider
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美國K形經濟所導致社會危機 - Josh Tanenbaum
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美國人口：3億4千7百萬(2025)；美國中層老百姓約2億人。
中國領導人在規劃「提升內需」方案時，應該參考下文關於：「信心」與「經濟活動」兩者之間動態關係的分析(1)。
附註：
1. 請參考此欄2025/12/17貼文，以及原文：“Confidence doesn’t just track reality – it can create it. When households feel in control, they invest, spend, take risks. When they feel trapped, they delay milestones, disengage from opportunity – and sometimes disengage from the social contract altogether.”
The economy isn’t K-shaped. For 87 million, people, it’s desperate and for another 46 million it’s elite
Josh Tanenbaum, 02/10/26
The most dangerous economic divergence isn’t in wealth. It’s in confidence.
U.S. consumer confidence collapsed to 84.5—its lowest level since 2014, below even pandemic-era lows, the Conference Board recently reported. The Expectations Index fell to 65.1, well under the 80 threshold that historically signals recession. Across income levels, Americans earning under $15,000 remain the least optimistic of any group.
Some look at the U.S. economy today and see resilience: markets near highs, unemployment steady, spending holding up. Others see something darker: affordability pressure, a stagnant labor market, and a growing sense that the system is rigged.
Both interpretations can be true – because the U.S. isn’t living in a single economy right now. That is because 87 million people live in the Desperation Economy – or 200% of the Federal Poverty Level. Another 46 million people live in the Elite Economy earning $100,000 or more.
The country is living in a K-shaped economy: two diverging roads, where outcomes for one group accelerate upward while outcomes for another flatten – or quietly deteriorate. The top half is compounding: stable employment, rising asset values, and the confidence that comes from having options. The bottom half is exposed: high sensitivity to inflation, fragile cash flow, rising credit stress, and a feeling that even doing everything “right” isn’t enough.
Today, the bottom half of the K-shaped economy is entering a new era. Call it the Quiet Riot.
This is the threshold where financial strain becomes behavioral exit—when people stop optimizing and start opting out. It is not through public unrest, but through millions of small, rational decisions that add up to something destabilizing: staying stuck instead of moving up, abandoning long-term planning, choosing short-term survival over long-term compounding.
It follows a simple framework. Fuel: affordability strain, debt stress, declining job quality. The oxygen is missing; a lack of agency (主動性), when people can’t see a credible path to mobility. The spark here is the shock that pushes households from “stressed but functioning” into opt-out mode. That can be job loss, medical bills, rent jump, or simply one more month where the math doesn’t work.
The result is a vicious cycle. Lower confidence drives lower mobility, which narrows opportunity further, reinforcing the strain that caused the confidence loss in the first place. The economy doesn’t break all at once. It frays slowly, as millions of people decide there’s no longer a reason to play a game they believe they can’t win.
But what makes this moment uniquely dangerous is the crisis in confidence.
Peter Atwater, an economist and William and Mary adjunct professor, has argued that what policymakers routinely miss is the psychological layer. People don’t act based on inflation prints or GDP releases. They act based on what they believe those numbers mean for them. And belief drives behavior.
Confidence doesn’t just track reality – it can create it. When households feel in control, they invest, spend, take risks. When they feel trapped, they delay milestones, disengage from opportunity – and sometimes disengage from the social contract altogether.
This is where affordability becomes the defining political issue. It has bipartisan appeal because its lived experience cuts across ideology. The bottom half of the K doesn’t experience “inflation coming down.” They experience groceries that never went back down, rent that kept climbing, car insurance that feels absurd, and job mobility that feels frozen.
The most dangerous phase of a K-shaped economy isn’t the part we can see on charts. It’s the part we can’t: the quiet shift in behavior when people stop believing effort translates into progress.
Here’s the problem: the top 10% of households own roughly 93% of stock market wealth. When the market rises, that’s whose confidence rises with it. When observers say, “the economy is strong” because the S&P is up, they are describing a prosperity that seven in 10 Americans don’t feel – because they don’t own it.
A K-shaped market can become a K-shaped society.
The optimistic take is not that this heals itself. It won’t. The optimistic take is that strategies are available to bend the graph back: wider participation in market upside, tools that make wealth-building automatic, reskilling that connects to real jobs, and a credible narrative of mobility.
The problem is that most financial “wellness” programs assume stability people don’t have. Most reskilling initiatives produce credentials without job offers. Most policy interventions are designed for the top half of the K, and then policymakers wonder why the bottom half isn’t responding.
There is no shortage of ideas. There is a shortage of solutions designed for volatility, not stability—for the people who need momentum, not the people who already have it.
A K-shaped economy that persists long enough becomes a K-shaped society—where the top gets insulated enough to become careless, the bottom gets desperate enough to become combustible, and the middle loses belief that effort translates into progress.
That’s not just an economic issue. That’s stability risk.
The choice isn’t between optimism and fearmongering. It’s between pretending the K is normal – or building the conditions to reverse it.
If we rebuild confidence through real mobility, real ownership, and real tools – not slogans – then the K doesn’t have to be destiny. It can be a warning sign that we acted on in time.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
This story was originally featured on Fortune.com
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美國巨額國債影響經濟及民生 - Eleanor Pringle
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National debt is already killing the American Dream, says top economist—and it might push the U.S. into an outright depression
Eleanor Pringle, 01/18/26
The government’s $38.5 trillion national debt is suffocating the American Dream, a leading economist has warned, and if a highly debated debt crisis comes to fruition the country could be facing an all-out economic depression.
Many factors have been blamed for the death of the American Dream. Most recently, it has been housing stock, with President Trump moving to bar large Wall Street investors from buying up single-family homes. Elsewhere, JPMorgan CEO Jamie Dimon agrees that housing is a barrier but so is education, saying opportunities need to be more accessible to young people across the country.
Meanwhile, the rising cost of retirement, raising children and running a car has led many to believe they can only achieve the lofty heights of the American Dream if they have $5 million in the bank.
However, many of these symptoms trickle back to the vast sum America owes to its debtors, according to Kurt Couchman, a senior fellow in fiscal policy at thinktank Americans for Prosperity. In the final three months of 2025, the government spent $276 billion in interest on the debt, which the likes of Bridgewater Associates founder Ray Dalio warn will one day squeeze out government investment needed to bolster economic prosperity.
In a Congressional testimony last month, Couchman told the House Judiciary Subcommittee on the Constitution and Limited Government that “the growing debt risks a bond market reckoning with potentially dire consequences for the American people. The actions of their representatives in Congress will determine whether the conditions of the American Dream—peace, freedom, and prosperity—survive, or if the future is decline.”
Already, that future is being hampered, Couchman, author of ‘Fiscal Democracy in America’, told Fortune in a phone interview. The affordability crisis (inflation by any other name) was largely sparked by an “explosion” in monetary supply at the onset of the pandemic, he outlined.
“We’ve already experienced the inflationary aspects of excessive federal spending and debt,” Couchman, who previously worked in government addairs positions in the Committee for a Responsible Federal Budget, said. “We’re now at the point where if you look at [the Congressional Budget Office], World Bank and [International Monetary Fund] and others, they say that once the debt burden achieves it surpasses a certain threshold of GDP that it starts to slow the economic growth.”
Economists aren’t necessarily worried by the total level of debt (in fact, government debt is a necessary foundation of global markets). Rather it’s the debt-to-GDP ratio, which measures a nation’s borrowing against its growth. If this tips too far out of balance, growth can be hampered by the excessive amount of cash needed for interest payments.
“So that means there’s fewer opportunities,” Couchman added. “The opportunities that are there aren’t paying as well. Productivity is being suppressed.”
Is the worst-case scenario reality?
The worst-case scenario is a debt crisis. This is the moment at which the U.S. cannot find buyers for its debt and is either forced to rein in spending, agree to higher interest payments to secure loans, or significantly increase its money supply to lower the value of the repayments—which comes with inflationary or hyper-inflationary effects.
In this case, Couchman believes, the “likelihood of having a recession, if not a severe recession or maybe even a depression, become possibilities.” He added: “The global, economic instability could translate into some real security risks and even threats to our political systems because of the kinds of politicians that people may respond to if they’re feeling especially desperate. Those are all challenges to the American dream that stem from the growing debt burden.”
Many speculators argue that while national debt is a problem, it is not a crisis that will ever become a reality: After all, one could argue the U.S. is too big to fail, and has within its own power the ability to avert such a squeeze.
And yet, Couchman argues that while a recession is an inevitability (“they happen every five years on average, plus or minus a few years, so sooner or later we’ll have one of those”) America has a chance to avoid anything more sinister if it “learn[s]] from the mistakes of others abroad or in the states before we get to that moment and turn the ship.”
A solution
There’s no easy fix for the government’s spending habits. At least, not a solution which will be popular, and as such, not one which elected politicians will be keen to put their neck on the line for. Because of this, the national debt issue is often described as a game of “chicken” with one administration to the next betting their successors will be the administration to address the poisoned chalice.
There are many options to rectify the balance, the least popular being to pull back spending. More broadly, the federal government could adopt a set of budget-balancing “fiscal rules.” While a more palatable option, that also means it’s less effective: According to an analysis from Oxford Economics of IMF data for more than 120 countries, on average, there’s a 1.1%-of-GDP improvement in the primary balance in the three years up to and including adopting a fiscal rule. However, there’s then a deterioration of the exact same percentage in the subsequent two years.
Couchman’s request is simpler: Transparency. The author and economist is making the same plea as Thomas Jefferson did to his Treasury Secretary more than 200 years ago, when he wrote: “We might hope to see the finances of the Union as clear and intelligible as a merchant’s books, so that every Member of Congress and every man of any mind in the Union should be able to comprehend them, to investigate abuses, and consequently to control them.”
“The most important thing Congress could do, to not only fix the budget but also restore democracy within Congress, is to do a real budget with all spending and all revenue in it so you can see everything,” Couchman said. “All the committees will get to manage their portfolios, and you can have real discussions about trade-offs, what’s more valuable, what’s not, what we need to do, and what we can live without.”
This story was originally featured on Fortune.com
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