Trump Administration Shifts to "Run It Hot" Debt Strategy

The Trump administration has shifted its stance on managing the US debt situation, moving away from austerity measures and towards a strategy of "running it hot." This pivot was hinted at by Treasury Secretary Scott Bessent in a recent interview, where he emphasized the importance of growing the economy faster than the debt.

Bessent's comments suggest a shift in policy towards financial repression, where the goal is to outgrow the debt by ensuring that bond yields are lower than the nominal growth rate of the economy. This strategy aims to make the debt less of a burden over time as higher revenues reduce its relative size.

However, this new approach seems to contradict the administration's previous goals of cutting deficits to 3% of GDP. The recently passed House tax and spending bill, which is expected to increase deficits by nearly $3 trillion over the next decade, further complicates this narrative. The bill's spending will need to be funded by higher debt issuance, which could potentially offset some of the deficit through increased tariff revenues.

Despite these inconsistencies, the administration's new strategy aligns more closely with the US government's approach from 2021 onwards. This shift in policy reflects a broader trend towards prioritizing economic growth over deficit reduction, a strategy that has been used in the past to manage high levels of debt.