Taps Coogan – October 12th, 2023

Paul Tudor Jones, founder of Tudor Investment Corp and the man famous for ‘predicting’ the 1987 ‘Black Monday’ stock market crash, recently spoke to CNBC to deliver a dose of fiscal reality:

Paul Tudor Jones:

“The fiscal situation is very different from other cataclysmic events we’ve suffered as a country. It’s not Pearl Harbor. It’s not 9/11. It’s not Covid, where we did not see them coming. They were external shocks. The fiscal situation… is one that’s really clear. There are obvious remedies for it, and we’re going to have to deal with it… I don’t know if we’ll have a Minsky moment in the bond market… that point of recognition, but we’re going to have the grinding reality that with 122% of debt-to-GDP, as interest costs go up…, you get into this viscous circle where higher interest rates cause higher funding costs, which causes high debt issuance, which causes further bond liquidation, which causes higher rates… Our interest bill is very shortly going to exceed our defense spending in just a couple of years… Something close to 20% of your taxes will go to pay interest on the debt if you don’t do something…”

“That has to be the main dialogue for next year’s Presidential Election and right now… the two guys that put us in this situation… are the ones that are our choices for President… Trump in 2016… was going to cut taxes and cut spending. Well along the way, cutting taxes was a great idea, but he didn’t cut spending. He inherited a 2.6% budget deficit. In 2019, it was 4.8% before the pandemic, so it almost doubled, and then in 2020 it went to 14% with the pandemic. Biden, when he got elected said… ‘You had two or three Oreos, I’m gonna eat the entire package.” 

“We’re going to have to have fiscal retrenchment… We’re going to have to cut spending. We’re going to have to deal with entitlements. We’re going to have to deal with Social Security. We’re going to have to limit Medicare and Medicaid. We’re going to have to raise taxes on the very wealthy…”

“We’re probably going to go into recession sometime in the first quarter of next year, probably because the bond market, simply through supply and demand, is going to deliver more rate hikes because we don’t have a clearing price yet for long term debt…”

Indeed… 

It’s hard to argue with any of those points except that tax increases don’t tend to increase long term tax revenues due to their growth-depressing effects.