Trump, Musk, and Milei

My Hopes for Mar-a-Lago

Politics makes strange bedfellows, none stranger than the magnetic attraction between Donald Trump and Argentina’s Javier Milei: American populist meet Argentine anti-populist, serial-defaulter meet budget-cutter.

Populism now

Trump is the classic populist.

Populism, by definition, is short-termism: It prioritizes short term cash transfers from a country’s budget to voters’ pockets. The cost comes over time: higher debt, more interest, more debt, more interest, and eventually a crash.  

Trump is a right-wing populist who promises tax cuts, which will be funded by debt, just like last time.

The Congressional Budget Office estimated before the election that U.S. debt to GDP will rise to 122% of GDP in a decade. Exante Data now estimates that under Trump it may rise to as much as 138% over the same period if policy promises are delivered in full. Wallets will be fuller in the short term, the liability account much bigger in the long term.

The problem for populists is that money doesn’t grow on trees—or perpetual MMT machines. Our debt is funded by the market, a market that will—one day—price the risk of inflation.

Since we print our own money, we are unlikely to ever default on bond contracts like Argentina. Yet bond prices will fall, bond yields will rise. Look what happened to Liz Truss in the UK in September 2022: she was tossed out as Prime Minister just weeks into her term because the bond market crashed when it didn’t find her budget credible.

To be sure, the US Treasury market is the deepest in the world and there is little chance it will shut like the UK’s did. But yields will creep up. Higher Treasury yields will mean higher mortgage yields and higher corporate borrowing costs. Growth will stall. Yet the country’s debt will keep rising. We’ll be in a debt-growth trap. And, in the last stage, our debt—and our savings—will most likely be inflated away.

A study in contrasts

While Trump is a right-wing populist, Argentine populism is left-handed: To win votes governments repeatedly spent more than they could afford. Deficits were funded with debt and money printing. The inevitable result, nine times in 200 years, was boom, bust, devaluation, and default. The country suffered hyperinflation in the 1980s, and last year inflation peaked around 140%.

Tired of decades of financial instability, in November 2023, Argentina elected libertarian economist Javier Milei as president. On the campaign trail he wielded a chainsaw, promising huge budget cuts. He lectured: overspending leads to money printing, which leads to inflation. Short term pain is better for long term gain, he argued—and won. One year on, he is delivering the pain he promised. Today he remains in power, and inflation has come way down. 

With Trump’s election we find ourselves in an upside-down position, historically speaking.

US debt risks are skyrocketing because US right-wing populists are about to take power, while Argentina’s debt risks are falling rapidly because its anti-populist president is fulfilling his promise to instill fiscal discipline.

Milei meets Trump

Ironically, the populist and the anti-populist have bonded. Trump and Milei have shared several warm photo ops over the last year and Trump and Musk are expected to meet with Milei at Mar-a-Lago tomorrow.

I do wonder about the wellspring of the Trump-Milei relationship. But from a public policy perspective, I see only upside. The U.S. can bring substantial new investment to Argentina—which will speed the country’s recovery. Milei brings to the table deep knowledge of what happens to a country that incurs too much debt and prints too much money.

I have high hopes for the meeting at Mar-a-Lago this week. I hope that Argentina wins money and a new Tesla factory from Trump and Musk. And I hope that Milei gives Trump some sound financial policy advice: “Don’t mess up with debt.” 

Gregory Makoff, Author, Default: The Landmark Court Battle over Argentina’s $100 Billion Debt Restructuring.

The content in this piece is partly based on proprietary analysis that Exante Data does for institutional clients as part of its full macro strategy and flow analytics services. The content offered here differs significantly from Exante Data’s full service and is less technical as it aims to provide a more medium-term policy relevant perspective. The opinions and analytics expressed in this piece are those of the author alone and may not be those of Exante Data Inc. or Exante Advisors LLC. The content of this piece and the opinions expressed herein are independent of any work Exante Data Inc. or Exante Advisors LLC does and communicates to its clients.

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