There Is One Big Problem With The Trump Budget

On Tuesday, the White House revealed its proposed 2018 budget, which as discussed earlier, anticipates some draconian cuts to government spending amounting to a massive $3.6 trillion over the next 10 years. Broken down by department, this is who wins and loses:

  • DHS +7%
  • VA +6%
  • Def +5%
  • DOJ -4%
  • Ener -6%
  • Int -11%
  • HUD -13%
  • Trans -13%
  • Ed -14%
  • HHS -16%
  • Labor -20%
  • Ag -21%
  • State -29%
  • EPA -31%

While one can debate the merits, philosophy and ethics of the proposed cuts, there is another, potentially more concerning observation to emerge from the budget, or rather its assumptions.

As a reminder, as of May, the current expansion which started in June 2009, and which has lasted for 95 months, is already the third longest in US history.

So what emerges when looking at the underlying assumptions of Trump's budget? Nothing short of assumed economic nirvana.

As the following table taken from page 45 of the budget (titled "A New Foundation For American Greatness") shows, the US is expected to grow at 2.3% in 2017, 2.3% in 2018 and so on, until GDP plateaus at 3.0% in 2020 and remains there until the end of calendar 2027.

What this means is that the White House is assuming there will be no deficit for the entire duration of the projected 10 year period!

But that's not all, because it also means that the White House budget is based on the assumption that the expansion that started in June 2009 will last at least until December 2027, or an absolutely unprecedented 222 consecutive months of expansion.

There is a problem with that: as the chart below shows, an expansion of that duration - nearly 19 years in a row - would not only be the single longest expansion in American histoy, but it would also last double the next longest duration ever recorded in the US, the expansion which began in March 1991 and ended with the dot com crash, in March 2001.

Unfortunately for the White House, while we are impressed with such grotesque GDP goalseeking, we have a feeling that the next recession will come far sooner than the budget projects...