Are we heading into a recession? - The Phoenician League

Yesterday we looked at the America First plan to recapitalize the United States.

To summarize briefly, that plan entails collateralizing Bitcoin and using it to backstop the US dollar to a certain extent while also drumming up significant institutional demand for US Treasuries to reduce the need for direct foreign investment. This will help stabilize the US dollar so that it can continue to serve as the world’s reserve currency for an extended period of time.

Meanwhile, the DOGE duo of Elon Musk and Vivek Ramaswamy are tasked with balancing the federal budget… or at least coming close. That’s essential to solidifying the US government’s finances and avoiding a massive debt spiral that would crash the entire system within the next four years.

It all goes hand-in-hand. The plan won’t work if they fail to execute any single aspect of it.

The DOGE team has the hardest assignment here. They have to figure out how to cut nearly $2 trillion from a federal budget that has morphed into a massive, out-of-control blob.

This task involves eliminating massive amounts of what we call corporate welfare and downsizing the federal government’s employment roll dramatically. There’s no way around that.

Some analysts in my circle believe that this would automatically create a major recession.

After all, the nearly $2 trillion figure we’re talking about represents the fiscal deficit. It’s money that the government “prints” and injects into the economy to pay for things that otherwise wouldn’t be paid for. How could you put a stop to that and not have a recession?

Perhaps they are right… but I’m not so sure.

A fundamental principle in economics is that we have to assess both first and second-order effects. First-order effects are what happen as a direct result of a given action or policy. Second-order effects are the unforeseen outcomes that occur as an indirect result of an action or policy.

In their effort to balance the budget, the DOGE team would necessarily have to take a chainsaw to the regulatory state. They would have to eliminate scores of regulations and fundamentally cripple the US administrative state that operates as a shadow government through the use of regulations.

That’s the fight we’re set up for. DOGE versus the Deep State. And they know this…

Incoming Office of Management and Budget (OMB) Director Russel Vought said in a recent interview that their research suggests that every regulation repealed will pave the way for seven new jobs in the private sector. As such, their goal is to completely dismantle the administrative state.

I don’t know if Russel’s ‘seven’ jobs number is substantive… but the specifics don’t matter. If DOGE is successful, it will pave the way for a small business renaissance in this country.

As we know, regulations impose compliance costs on small businesses that are disproportionately burdensome. Large corporations can hire compliance staff to deal with the regulations… small businesses typically can’t. They don’t have the resources to dedicate to unproductive activity.

This is why we’ve seen a dramatic decline in small businesses in this country over the past 30 years. The financialization of everything and the rise of the administrative state created an economy that crowded out localized entrepreneurs.

The numbers spell this out…

New business creation has declined by nearly 50% since the 1970s. In 2019 – before the Covid hysteria wreaked havoc on everybody – the data shows that 30% fewer small businesses were started as compared to 1970.

Perhaps we would see some of the old entrepreneurial spirit return to this country if the DOGE team is successful in its efforts. It would take some time for this to play out, but we’d likely experience a robust economic resurgence as a result.

And that raises an important point…

We tend to talk about the economy as if it’s one giant machine. The implication is that if the economy is “in a recession”, then everybody must be struggling. But that’s not true.