TL;DR

Last week in a meeting someone said that Donald Trump wins the drunken sailor award for government spending, out of the three post-GFC Presidents.

WTF? This was different to what I remembered. I had closely followed the borrowing/spending habits of Team Obama/Geithner and Team Trump/Mnuchin. And I’ve been keeping a watchful eye on Team Biden/Yellen and their debt and deficits party that’s still playing out.

So, over the weekend I did some numbers to prove I wasn’t munching on magic mushies.

And the results are that the Drunken Sailor Award clearly goes to Team Obama/Geithner, the Smoke and Mirrors Award goes to the dynamic duo of Biden/Yellen, and the Ebeneezer Scrooge Award goes to the unlikely tag team of Trump/Mnuchin.

Read on for the scorecards.

Which Administration borrowed the most since the GFC?

Government debt has grown at an annual rate of 8% since the GFC across three Presidential teams.

Team Obama/Lew/Geithner borrowed the most over a longer period (Obama had more than one term) and grew debt at a faster than average rate, of 8.2%.

But Team Trump/Mnuchin borrowed at the fastest rate, of 8.6% compunded.

Okay, so they were pretty good at borrowing. But that table obscures the whole picture because it only shows the borrowing, not the spending.

And the spending is influenced by how much cash each Administration borrowed and retained in its daily bank account, i.e., in the Treasury General Account, or TGA for short.

The TGA receives taxes and other income and pays governments bills. A positive balance means it has dry powder to spend.

Net government debt reveals the drunken sailors

It’s only once we take the ending TGA balance into account for each Administration, that we can calculate net government debt.

This ‘net debt’ number tells us more about the spending habits of each Administration.

And depending on whether this deficit spending has been spent on welfare versus productivity, it can either be inflationary (where demand exceeds supply of goods or services), or non-inflationary (where supply increases to satiate demand).

And here are the results.

Note that Team Obama/Geithner left the TGA how they found it (neutral), whereas Team Trump/Mnuchin quadrupled it (increasing savings/spending headroom), and Team Biden/Yelen spent half of the Team Trump/Mnuchin war chest (increasing government spending).

Of all Administrations, Team Trump/Mnuchin retained the most in the Government piggy bank—adding $1.2 trillion to the $0.4 trillion left by Team Obama/Geithner, to finish at a massive $1.6 trillion TGA.

Mnuchin’s bloated TGA can be seen in the green shaded area charted below 👇

That paints a slightly different picture, no?

And to build up a TGA of $1.6 trillion after the trillions in COVID stimulus and massive government revenue loss from Trump tax cuts, is pretty-impressive. I’d call that, responsible.

So which team wins the drunken sailor award?

As of today, Biden and Yellen have spent more than Trump and Mnuchin because while they might have borrowed a little less (~$300 billion less), they have so far spent half of the massive TGA left behind by Team Trump/Mnuchin.

Here’s what the spending patterns look like, so far.

Looking at spending instead of borrowing, after deducting the TGA, I think we can safely hand out the following awards:

• Drunken Sailor Award—Team Obama/Geithner/Lew with the fastest net debt build up at 8% CAGR.

• Smoke and Mirrors Award—Team Biden/Yellen with a 7.4% CAGR after draining half of the massive TGA left by Trump/Mnuchin (other people’s money, lol).

• Ebeneezer Scrooge Award—Team Trump/Mnuchin with an annual net debt build of only 7%.

Implications for a Harris win in November.

While it’s tempting to think of Trump as the biggest spender (due to COVID stimulus) and tax cuts, the reality of the ending net debt increase under Trump paints a more conservative picture. Trump was not the drunken sailor.

Biden is spending at a faster pace. And if Harris wins the White House and continues/accelerates the Biden green transition, social welfare and tariff policies (albeit originally started and still supported by Trump) we can expect all that spending to drain the $0.8 trillion TGA, massively increasing the deficit and the requirement for further government borrowing—and for inflation to remain elevated, if not start another wave.

And we all know how an increasing rate of inflation coupled with higher interest rates, cost of capital and USD for longer effects the global macro, and just as importantly Western Australia’s resources-dependent economy.

At the same time, there’s no guarantee that a Trump win would result in less inflation. Trump’s stated intent to moon tariffs and build the wall are both likely to be inflationary in terms of domestic price and wage increases. On the other hand, incentivising fossil fuel investment, while disincentivising the renewables transition is likely to be disinflationary.

The degree to which one is going to be more inflationary than the other is also clouded by a lack of fulsome policy guidance from the Democrats. We’re still waiting.

Let’s wait and see. Not long now until November.

See you in the market.

Mike