Bessent Is Right: The Economy Needs A Detox

Treasury Secretary Scott Bessent is right when he says that the economy needs a “detox.” To fix the problems created by decades of artificially-low interest rates, soaring deficits, out-of-control spending, a dying manufacturing base, and central bank meddling, there has to be a little bit (or a lot) of pain.

The S&P 500 owes much of its climb to low-rate liquidity, and most growth on major indices can be attributed to a small basket of companies. A 2023 Fed study estimated that a 2% rate hike could slash GDP growth by 1.5% within two years. Pain? Try agony. And, predictably, Bessent more or less blames the Biden administration, saying Trump inherited the ill-effects of Bidenomics. The reality is that this sour potion has been brewing for a long time, transcending party lines.

But the Trump Administration faces a Catch-22. Bessent wants yields down to ease debt burdens. Yet Trump’s growth agenda—tariffs, tax cuts, infrastructure—requires borrowing and risks inflation, pushing yields up. The bond market’s recent wobble, with yields dipping then rebounding, signals confusion. Stagflation is inevitable. As Peter Schiff recently said on X (formerly Twitter) about the dollar index, consumer prices, and bond yields:

“The U.S. Dollar Index has now lost all of its post-Trump victory gains, trading at its lowest level since Oct. 2024. I expect another 10% – 15% drop by year-end, with even more downside in 2026. This, plus tariffs, will put substantial upward pressure on the CPI and bond yields.”

Japan tried low rates for decades, only to stagnate with a debt-to-GDP ratio over 250% and a yen gone mad. The U.S., at 125% debt-to-GDP, isn’t far behind. Europe’s post-2008 austerity experiments triggered recessions without curing deficits. Detox sounds good until the patient flatlines.

Can Americans stomach such a bitter pill? Probably not. And yet, the pill still isn’t bitter enough. Decades of easy money have bred entitlement—homeowners expect cheap mortgages, CEOs demand stock buybacks, and politicians crave pork-barrel projects. A 2024 Gallup poll found that most Americans oppose spending cuts to Social Security or Medicare. Politically, Trump can’t afford a revolt. Economically, he can’t avoid one.

https://www.zerohedge.com/pers...-economy-needs-detox