Image Source: Pexels

With the U.S. national debt soaring past $36.7 trillion and deficits hitting 7% of GDP, the fiscal status quo is crumbling. As Jim Bianco of Bianco Research warned in a recent discussion with Jim Puplava (see Mar-a-Lago Accord: Big, Bold, and Radical), “We cannot continue with a $6.9 trillion budget, $2 trillion deficit, and $36 trillion of debt.” The Trump administration’s response, which has been dubbed in the press as the “Mar-a-Lago Accord,” signals a seismic shift in economic policy. Unlike Trump 1.0, Trump 2.0 is moving at breakneck speed to address the crisis through bold, unconventional measures. If he fails, the U.S.’s traditionally strong credit rating could face additional downgrades, potentially very soon.

A Fiscal Precipice
 

The numbers are staggering: debt grows by $1 trillion every 100 days, interest payments exceed $1 trillion annually—outpacing defense spending—and 80% of the $6.75 trillion federal budget is locked into Social Security, Medicare, defense, and interest. With deficits at 7% of GDP in a growing economy with 4% unemployment, the situation is dire. “We need to solve this problem because it’s become so intractable,” Bianco stressed. The Mar-a-Lago Accord, a metaphorical nod to historic financial realignments like Bretton Woods, encapsulates Trump’s vision to leverage America’s global dominance to avert fiscal ruin.

Trump 2.0: Bold and Unconventional
 

Trump’s strategy hinges on radical ideas to tackle the debt crisis and re-industrialize America. Key pillars include:

• Outgrowing the Debt: Bianco highlights Treasury Secretary Scott Bessent’s “3-3-3” plan, which aims for 3% GDP growth to outpace debt accumulation, stating, “There’s only really one good way to get rid of this, and this is to outgrow it. The bad way you could correct this problem is either through default or restructuring.” He explicitly contrasts outgrowing the debt with restructuring, indicating the latter is undesirable.
• Sovereign Wealth Fund and Asset Revaluation: Bianco discusses creating a sovereign wealth fund to revalue assets like gold, federal real estate, and intellectual property, which could offset the debt by adding trillions to the national balance sheet. This is presented as a way to improve the fiscal position without restructuring existing debt obligations.
• Billing Allies for Security: The U.S. has borne the cost of global security for decades, contributing to its debt. Trump proposes that allies, especially in Europe, pay for this protection. “Where did a lot of that $36 trillion of debt come from? It came from military expenditures,” Bianco noted. By shifting some responsibility to allies, the U.S. could cut military spending, easing fiscal pressure.
• Reducing Deficits: He mentions Bessent’s goal to cut the deficit from 6% to 3% of GDP through deregulation, DOGE-led efficiency cuts, and increased oil production, which would slow debt growth but does not involve restructuring.
• Tariffs and Security Payments: Bianco notes Trump’s use of tariffs and demands for allied security payments to generate revenue and reduce military spending, indirectly easing fiscal pressure without altering debt terms.

Navigating Risks
 

The Mar-a-Lago Accord’s ambitious scope carries risks. The rapid pace of change is highly disruptive and may erode public support, especially if tariffs or government downsizing slow the economy before 2026 midterms. “If his approval rating were to fall into the 30s, you might peel off a couple of Republicans that are afraid of their reelection chances,” Bianco warned, noting Trump’s slim congressional majority.

Promised investments—$1 trillion from the UAE, $500 billion from Apple, $600 billion from Saudi Arabia—may falter, as seen with Foxconn’s unbuilt Wisconsin plants. Long-tail projects like factories take time to boost GDP, risking short-term economic weakness.

Reindustrializing America: Addressing the Costs of Globalization
 

A central pillar of Trump’s agenda is reindustrializing the United States to reverse the hollowing out of the middle class caused by globalization. Jim Bianco highlighted the stark human cost of this trend: “Those 65% that have a high school degree have a life expectancy of seven years shorter than people with a college degree. Why is that? It’s deaths of despair—alcoholism, liver disease, drug overdose.” These communities, left behind as industries moved overseas, have seen their towns become “boarded-up wastelands.” Trump’s policies, including tariffs and deregulation, aim to bring back high-paying manufacturing jobs that can support families, as Bianco noted: “Maybe that’s worth it because that brings back hundreds of thousands of jobs where a single job could support an entire family.” This focus on reindustrialization seeks to restore economic vitality to the heartland, addressing not just fiscal concerns but also the social devastation wrought by decades of globalized trade.

The Dollar: Balancing Strength and Competitiveness
 

Trump’s administration is navigating a delicate balance with the U.S. dollar, aiming to maintain its status as the world’s reserve currency while lowering its value to boost competitiveness. Bianco explained this dual objective: “We want the dollar to be the reserve currency. We want the dollar to be the most important currency in the world. [But] we want its level lower.”

A lower dollar would make U.S. exports cheaper and imports costlier, supporting domestic manufacturing. However, Bianco emphasized the importance of the trade-weighted dollar index, which has risen 240% over 40 years due to devaluations by trading partners like Mexico, Canada, and China. Trump’s tariff threats against these nations aim to counteract these devaluations, as Bianco noted: “It’s not a coincidence that Trump started off with tariffs on Mexico and Canada, because that’s the currency he’s looking at.” This strategy underscores Trump’s intent to wield the dollar’s global dominance as a tool for economic revitalization.

Investment Opportunities in Transition
 

Despite challenges, Bianco sees a shifting investment landscape. He predicts a “4-5-6” market through 2030: 4% returns on cash, 5% on bonds, and 6% on the S&P 500 at the index level. Sticky 3% inflation, driven by de-globalization, suggests the Fed will not be quick to cut rates. “If the long-run inflation rate is actually 3% and maybe the neutral rate is 4, then we’re effectively at the neutral rate now,” Bianco explained. Investors should pivot to thematic and active strategies, focusing on infrastructure and manufacturing.

A Necessary Experiment
 

The Mar-a-Lago Accord reflects a stark reality: inaction courts disaster. “If we don’t do this, we’re headed for trouble,” Bianco asserted, warning of debt spiraling to $50 trillion. Trump’s transactional approach—wielding tariffs, demanding security payments, and revaluing assets—aims to restore economic vitality and create high-paying jobs. While risks abound, the status quo is no longer an option. “If you don’t like what he’s doing, give me a Mar-a-Lago 2.0. But don’t tell me that we can’t do this,” Bianco challenged.

More By This Author: