Downsizing to Starve the Beast
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Darrell Castle talks about debt and the Trump administration’s effort to control it.
Transcription / Notes
DOWNSIZING TO STARVE THE BEAST
Hello, this is Darell Castle with today’s Castle Report. This is Friday, the 10th day of January in the year of our Lord 2025. I will be talking about debt and the potential for disaster if it isn’t somehow tamed. Donald Trump is at least paying lip service to it with his creation of DOGE or the Department of Government Efficiency.
Donald Trump has appointed Elon Musk and Vivek Ramaswamy to head a new department of government which he calls the Department of Government Efficiency. That is an attractive name but if flies in the face of the political trend that has existed for at least 50 years. Before that time, the government had some accountability since its wars, its tax cuts, etc. had to be paid for and it had to have enough gold deposits to cover all of it.
Once the dollar’s ties to gold were removed in 1971, the government no longer had any restraints on its spending. A government of the people and by the people needs some restraints because without them human nature will control the politicians elected to serve the people. When a politician discovers that he can achieve reelection thus retaining power by spending the resources of others or promising to do so he will do it or at least that has been the trend since 1971.
A responsible government recognizes its limits and it spends only what it can raise in taxes. If the federal government were responsible the United States would not have the 36 trillion of debt that it has today. People are alarmed at the size of the debt but not many want their pet projects or their own largesse to be reduced so I wonder if DOGE will have an opportunity to succeed. It seems that the goals of Elon Musk and Donald Trump are headed on a collision course.
If Musk gets his way, at least the way as he has described it, then we should get some positive results. There could be lower deficits which should bring lower inflation, lower interest rates and a far less expensive and less powerful government. We might even expect a business revival with the return of manufacturing to the U.S. Mr. Homan’s efforts on the border would ensure the departure of many murderers, rapists, torturers, child molesters, terrorists and assorted lunatics who now reside here illegally at government expense.
The Republican elite, and now that includes Donald Trump, may just have a different agenda. Trump has just spent 9 years and a lot of money to gain power including a Republican majority in both houses. Those majorities will not want to become less powerful but instead they will want to use that power to take more power and wealth from the American people who are supposed to hold it. That is human nature and the prevailing political trend. The hearts of mankind are black and desperately wicked the bible tells us and when power and money are unrestrained the humans who have it will use and abuse it.
Right now, Donald Trump is the most powerful man in the world and he seems to be enjoying it immensely. My guess is that he will not want to share the power with a billionaire from South Africa for very long, but I could easily be wrong and if so it wouldn’t be the first time. The President-Elect seems to enjoy conducting foreign policy even before he is inaugurated, but I suppose power abhors a vacuum and so somebody will execute foreign policy or at least that is the way he seems to see it.
He is a businessman and a negotiator and right now he has the power and he is trying to establish with friend and foe alike that business will be conducted differently in the future. Bloomberg tells us that he warned the European Union that its exports will get hit with US tariffs if European Union countries don’t buy more American oil and gas. He posted on Truth Social about that statement:
“I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas. Otherwise, it is TARIFFs all the way.”
So, he is trying to represent the United States on the world stage in the most, big man who carries the big stick, way that he can. His seemingly idiotic comments have reasons as well such as his comments about buying Greenland. What could Greenland do for the US were it available for purchase. It would serve as a giant military base for US navy and Airforce assets to act as a deterrent to Russia in the Atlantic and especially in the Arctic. Comments about America buying anything are humorous because of the 36 trillion current debt, but they also indicate a lack of understanding of just how ravenous the debt beast is.
The real purpose of the comment was quickly achieved when Denmark announced in response that it would spend whatever it takes to properly garrison its bases there. The comments about Canada becoming the 51st state and Trudeau becoming governor also achieved their intended purpose because Trudeau is gone. Renaming the Gulf of Mexico the Gulf of America is basically the same. Mexico understands now who the leader is economically, and it understands that it must cooperate with the US in controlling the border.
Big Man politics requires a big military to back it up and that is expensive. Should we then expect bigger deficits not smaller ones. He is telling Musk to seek out and destroy waste, but if that saves any money will he just spend it somewhere else thus continuing to pile debt higher and higher. Perhaps he is being advised that growth will make up the difference and perhaps that is so but it still worries me because the political trend for 50 plus years has been more debt, more power, more waste, and much bigger deficits.
The world, especially the non-western world, is responding to all this by organizing into opposing economic blocks we have come to call BRICS. That block was originally Brazil, Russia, India, and China with South Africa joining two years later. It was formed for strictly economic reasons but has evolved into many other things including mutual security agreements. Last year it expanded to include Iran, Egypt, Ethiopia, and the United Arab Emirates as full members. Belarus, Bolivia, Kazakhstan, Thailand, Cuba, Uganda, Malaysia and Uzbekistan are expected to join soon.
Now, Indonesia, the fourth most populous country in the world, with about 300 million people has joined. The Indonesian leaders apparently see an alliance with China as more beneficial than an alliance with the US. I suppose that is the path for development and out of poverty for them. Countries in Asia who ally with the US do profit and become G-20 economies as have Japan and South Korea but that requires a very strong military presence by the US on the soil of their countries. To me, this indicates a lack of confidence and trust in the US economy and in the US as a trading partner so we will see how that plays out with Trump’s Big Man politics.
There is an important name missing from this list and that is Argentina. It has now been one year since Javier Milei took office in that country but what a difference a year can make. Before he took office in December 2023 the Argentine economy was in shambles and had been for decades. The stock market had been flat to descending for ten years as foreign investment in the country dried up. Since he took over stock prices have doubled and the market is booming with foreign investment flowing into the country.
Most importantly, Milei set out to restore the notion that the government exists to serve the people not the other way around. The Trump transition team is taking notice of Argentina because Trump invited Milei to Mar a Lago for discussions about how he turned his country around in one year. It seems that he operated with a chainsaw and not a scalpel. Quote from Javier Milei:
“Today, with pride and hope, I can tell you that we have passed the test of fire. We are leaving the desert, the recession is over, and the country has finally begun to grow.”
Argentina, once one of the world’s 10 richest countries, stayed in the desert for a long time, defaulted on its sovereign debt three times since 2001 and was on track for a fourth. Its annual inflation rate was nearly 200% and the poverty rate was above 40%. Incredibly, it had negative growth of 1.6% so what did mister Milei do to reverse the decline of his country. One thing he did for Argentina and the whole world was prove that it could be done, but for Argentina here are just some of the reforms he accomplished.
He closed 10 government agencies, fired 34,000 government employees and cut spending by 30%. The number of government ministries was cut in half from 18 to 9. All state funding of media was ended and so was media propaganda. All public infrastructure projects not yet underway were halted. Entire divisions of the administrative state were abolished. All fuel and energy subsidies were canceled. Import/export regulations were examined and those not helpful were canceled. He did all those things within 48 hours of taking office and that folks is how an economic chainsaw works.
The world watched to see if he would be successful or end up a casualty as have all other Argentine leaders for decades. To lead his movement away from government control of everything including government control of business and the corporate world he adopted the slogan “Viva la Libertad” Long Live Freedom. When he started, the Fraser Institute’s Economic Freedom Index rated Argentina 159th out of 165 countries or just between Iran and Burma in economic freedom so he certainly had his work cut out for him.
Milei promised the Argentine people that if they elected him and allowed him to employ his libertarian philosophy he would take drastic and immediate remedial action with regard to the nation’s economy. The result has been fairly astounding as a brief glimpse will tell us. In November 2024 Argentina announced its ninth consecutive month of budget surpluses. Inflation was below 3% per month and the central bank of Argentina cut interest rates from more than 100% to 36%. The rate of wage growth at 4.7% exceeded the inflation rate for the first time in many years. The World Bank projects Argentina’s growth at 5% for 2025 a remarkable achievement.
Not everything has been a bed of roses during this changeover, however. In Argentina, as in the US government spending is one of the prime movers of GDP so when government spending contracts growth numbers will contract until the economy starts to catch up with the new private economy or one not fueled by government debt and inflation. The poverty rate went up from an average of 40% to 53% year over year, but now it has started declining. Once again when government spending is curtailed the private economy takes a little time to take up the slack.
Peter Earle, an economist with the American Institute for Economic Research gave his thoughts on the most important part of the Milei revolution in Argentina:
“Perhaps most important of all, and beyond economics, Mr. Milei has jump-started a cultural shift away from socialist ideals.”
When Mr. Milei spoke at the WEF last year he told the assembled Davos men and women that the socialist proposals he was hearing from them at Davos would lead to nowhere but poverty. Liberty and a free economy are a form of rebellion against the world system as it currently exists. Hopefully Donald Trump and his transition team are studying Argentina because both he and Milei campaigned on eliminating government waste and revitalizing their economies.
If Trump and his DOGE team follow through on cutting government spending and eliminating waste then a similar path of pain followed by gain should be expected. The price seems to me to be one worth paying but there remain some serious questions.
Finally, folks, what is the first thing Trump should do with the American economy. The answer to that question is stop spreading counterfeit money all over the world and its corrupting influence will decline. Can the US Government oversee its own downsizing because upon the answer to that question depends the future of economic success for us and our posterity.
At least that’s the way I see it,
Until next time folks,
This is Darrell Castle,
Thanks for listening.
