Almost two years ago we revealed “The $1 Trillion “Stealth Stimulus” Behind Bidenomics“, which for the sake of brevity we exposed as budget-busting, debt-funded “stimulus” payments that flowed straight into the “government spending/investment” line item of the GDP ledger, providing a powerful and instant boost to GDP (through extremely inefficient and corrupt allocation of resources by govt bureaucrats), which cost $1 trillion in Federal debt every 100 days. And while nobody in the Biden admin cared about the massive debt incurrence it left in its wake, everyone was delighted by the artificial sugar rush this debt-fueled spending spree afforded GDP by way of the US government as shown below.
It is this artificial “growth” and the associated debt cancer that DOGE is trying to root out, while reviving the private sector. Unfortunately, that pernicious transition which took place gradually but (almost) irreversibly over the past decade, will be brutal and stubborn to reverse.
But while we have been banging the table and warning that the days of sugar highs for US “growth” will end in tears, and more recently both Trump and Musk/DOGE have become fervent converts to the church of fiscal prudence, it was unprecedented for Wall Street banks, whose gravy train depended on a continuation of the debt-funded status quo, to admit what was obvious for all to see.
Until now.
In his latest must-read report (full note available to pro subs), Bank of America’s Research Investment Committee head
Jared Woodard writes that the US had never been more government-dependent: it relies on government for 85% of job growth, 33% of all spending and — worst of all — 6-7% budget deficits, all of which are at record high (excluding crisis and war).
We agree with all of that – after all we have written about it for years… As for what the BofA strategist said next namely that “Economic growth has been enabled by unsustainable government support and protectionist policies”, the White House should hang on billboards across the country. Here are the details from Bank of America:
- Employment: one year ago, 85% of US job market growth was in government and sectors dependent on government spending like health and education. That number is now falling, today at 70%, and as BofA puts it, “a greater private sector share of job growth should raise productivity”, which confirms that government jobs are about as unproductive and inefficient as they get, something DOGE has been claiming since day 1.
- Consumption: in 2024, one third of GDP came from government spending, a record high excluding periods of war or crisis; this was financed by 6-7% budget deficits, another unwelcome peacetime record.
- Trade: every G20 country has higher average tariff rates than the United States save two, and most countries hide the true costs in expensive barriers like quotas, price controls, labeling requirements, and testing rules. Including tariffs and nontariff barriers, access to the US market is far cheaper than any G20 country (11% on average).
We also agree with Woodard’s much less pleasant conclusion, one which lays out the huge stakes gamble facing Trump as he tries to hand off US growth from unproductive, debt-funded government growth to productive, self-funded private sector growth.
As we first laid out over a month ago…
Here’s the bigger play at hand, and why there is only token pushback to DOGE.
You cut enough spending – even if it’s all grift and fraud – you eventually get a recession, guaranteed. That’s all Congress is waiting for cause then they use the “emergency” to vote through a far…
— zerohedge (@zerohedge) February 8, 2025
… and as the BofA strategist decries, “the global handoff from big government to the free market may prove slippery, but it seems necessary given large deficits and bloated debt burdens.”
In other words brace for lots of pain as Trump tries to fix years and decades of uniparty graft and corruption.
And not just in the US: according to Woodard, the handoff is global: the public-to-private shift is happening everywhere.
- In Japan, accelerating corporate reforms (buybacks and capex) are unlocking ¥206tn in cash (33% of GDP) to support a stock market rally this spring, according to Masashi Akutsu.
- In Germany, Chancellor Merz is ready to release the debt brake and fund €1tn defense and infrastructure spending.
- In China, pro-stock market / private news could be a signal in favor of domestic consumption.
- In Argentina, fiscal cuts worth 5% of GDP have balanced the budget, caused a 25ppt drop in inflation, and boosted stocks.
Of course, the effects wont be seen overnight: BofA cautions that it may take some time for private sector job growth to accelerate, for government workers to resettle, for broad-based corporate profits to rise, and for global trade to find a new equilibrium. Not surprisingly, earlier today Howard Lutnick said that Americans will only feel the power of Trump’s economy by Q4… meaning the economic slowdown and recession that hits in Q2 and Q3 will still be Biden’s doing.
Ultimately, the good news outweighs the bad, and as Woodard concludes, “the likely productivity gains from a market-based economic reboot are greater than risks, while the risks from the unsustainable status quo of debt-financed, tepid, and narrow economic growth are severe.”
We agree completely.
More in the full note available to pro subs
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