The Second Act

Making Sense of Trump's Return

The markets’ reaction to Trump's second-term victory was nothing short of explosive. Bitcoin rocketed past $75,000, the U.S. dollar logged its biggest one-day jump in eight years and stocks hit record highs.

The big question is whether Trump can translate this Wall Street euphoria into meaningful change for the everyday Americans who picked him as their 47th president.

Elected on a promise to “Make America Great Again,” Trump’s got a serious uphill battle ahead. The national debt is closing in on $36 trillion, annual deficits have exploded to nearly $2 trillion, and the dollar's status as the world's reserve currency – America's golden ticket since World War II – is under serious threat.

Now, Trump stood out as the only candidate that mattered who even brought up these issues. Gotta give him that. But some of his fixes—especially when it comes to keeping the dollar as the world’s reserve currency—aren’t exactly great. Take a look at this recent video where he outlines his plan to keep the world using U.S. dollars.

For those who’d rather read, here’s the main gist from the video:

If a country tells me, “Sir, we like you very much, but we’re going to no longer adhere to the dollar as the reserve currency,” I’ll say, “That’s okay, but you’re going to pay a 100% tariff on everything you sell into the United States. We love your products, and I hope you sell a lot into the U.S., but you’re going to pay that 100% tariff.”

This tough-talking stance is classic Trump—and a big part of why so many love him. But trying to bully countries into using the dollar isn’t just ineffective; it’s counterproductive. In fact, it’s this kind of financial strong-arming that has pushed nations to seek alternatives to the U.S. dollar in the first place.

Rather than understanding why countries are losing faith in the dollar, Trump seems bent on doubling down on the exact approach that’s been fueling de-dollarization.

The economic muscle behind Trump’s threats isn’t what it used to be, either. The IMF projects that the U.S. economy will grow more slowly than China, Russia, and India—key players in the BRICS alliance, which is setting up alternative trade systems and challenging the U.S.-led financial order. Meanwhile, American households are grappling with declining purchasing power, surging debt, and historically low savings rates.

The reality is simple: keeping the dollar’s global status—if it’s even possible—is going to take carrots, not sticks. You can’t threaten your way to monetary dominance. Not to mention, 100% tariffs would just push prices up at home as businesses pass those costs on to consumers like you and me.

The Musk Factor 

Now, if there’s one thing that might give hope to those watching from the sidelines, it’s Elon Musk—Trump’s latest wild card in the political game.

Like him or not, listen to Musk talk, and you’ll see he comes across as a genuinely concerned citizen who gets the country’s issues and is frustrated by the lack of common-sense solutions from those in charge. Far from the hard-right extremist the media’s been working 24/7 to make him out to be. Here’s what he recently said about inflation:

Inflation is made in Washington because only Washington can create money, and any other attribution to other groups of inflation is wrong. Consumers don't produce it. Producers don't produce it. The trade unions don't produce it. Foreign sheiks don't produce it. Oil imports don't produce it. What produces it is too much government spending and too much government creation of money and nothing else.

It’s like Musk is taking a page right out of Doug’s playbook. That’s the kind of talk that makes bureaucrats choke on their morning coffee. No blaming Putin, no finger-pointing at grocery stores or oil companies—just a clear, no-nonsense focus on the real culprit: government money printing and spending.

Musk’s remedy? Cutting government bloat.

To execute this vision, Trump himself has proposed that Musk lead a new initiative called the “Department of Government Efficiency” (DOGE)—a nod to Dogecoin, the cryptocurrency Musk has famously backed.

Musk is, of course, uniquely qualified for the job—and he doesn’t mind ruffling a few feathers along the way. Remember; when he took over Twitter (now X) in 2022, Musk fired more than three-quarters of the staff—a move that “experts” claimed would destroy the platform. He’s shown similar resolve at Tesla this year, cutting 10% of its global workforce—over 14,000 positions across sales, engineering, and the charging network team—without missing a beat.

Musk appears ready for the challenge of cleaning up Washington. Shortly after Trump's victory, he posted a familiar image—himself carrying a sink into the Oval Office, echoing his famous entrance into Twitter headquarters where he told everyone to "let that sink in."

Gotta love the guy’s sense of humor.

But when Musk claims he could save $2 trillion from the federal budget, that’s where I have to start questioning things.

First, that’s a colossal figure—almost a third of current spending. Musk’s target is also almost twice the combined budgets of the Departments of Defense (around $900 billion) and Homeland Security (about $103 billion).

Second, $2 trillion happens to be the exact amount needed to balance the budget today, as I mentioned in a recent essay. Makes you wonder if Musk chose that number for effect—especially since he hasn’t offered any details on how he’d actually achieve those savings.

Third—and this one’s pretty obvious—the federal government isn’t Twitter or Tesla; you can’t just walk in with a sink and start firing people (unfortunately). Every department has its defenders in Congress, every program its vocal advocates, and every dollar of spending has a constituency fighting to keep it.

So, I’ll admit, I’m skeptical. Not necessarily of Musk himself, but of the idea that any single person would get the power needed to save this kind of money. Especially if that person’s running things from outside the government, as Trump suggested—no Cabinet seat, since “Musk doesn’t want it.” It might be one feather too many to ruffle, even for a master ruffler like Musk.

Some Final Thoughts

Let me be clear about something - I genuinely hope I'm wrong here. Nothing would make me happier than to see Trump and Musk actually deliver the kind of transformative change that Americans voted for. The idea of slashing government bloat, reigning in spending, and restoring fiscal sanity to Washington isn't just appealing - it's desperately needed.

But hope makes for a dangerous investment strategy.

I also can't ignore Trump's own fiscal track record. During his first term, federal spending exploded from $3.8 trillion in Obama's last year to $6.6 trillion by the time Trump left office. This was the largest peacetime spending spree in American history, with trillions flowing into stimulus checks, PPP loans, and countless other programs.

Yes, some of that was due to the pandemic. But keep in mind, the deficit had already swollen by 70% between 2017 and 2019 through defense spending increases and other spending initiatives. COVID-19 just threw fuel on an already burning fire.

The Treasury markets seem to be betting on history repeating itself. Since Trump's victory, yields have surged dramatically—the 10-year note jumped to 4.425%, its highest level since July, up sharply from 4.290%. Even more telling, the 30-year yield saw its biggest spike since the March 2020 crisis.

The bond markets are clearly telling us to buckle up for more of the same—higher inflation and more government spending. Let’s hope they’re wrong, but you should probably plan as if they’re right.

Regards,

Lau Vegys