Scott Bessent said today that tariff revenue is on pace to do "well over a half a trillion dollars, maybe toward the trillion dollar" mark annually.
Remember, every $300 billion reduces the budget deficit by 1 percentage point. At $500 billion that would take the budget deficit down to 3.7%. That's precisely the average budget deficit of the past 50 years.
It would be the lowest since 2018.
Add to that, a full point cut in the Fed Funds rate (which would still leave it above the neutral rate) would lower the deficit by another full percentage point, via lower debt service costs — taking the budget deficit below 3%.
And in his cabinet meeting today, Trump talked about the coming agreement on drug prices with the pharma industry, that will bring down healthcare entitlement outlays in the budget.
Based on the way this deal has been described, and the current outlays from Medicare and Medicaid, ChatGPT estimates another half a percentage point in deficit reduction.
As we discussed earlier this month, we have a formula at work for higher growth, higher revenues and lower costs. And that's putting the U.S. in a very strong position relative to the rest of the world.
With that, gold has traded as the hedge against runaway U.S. deficits/against U.S. fiscal profligacy. That trade may be over.