Galb ai h, James K.
A icle
Two Ossi ied Ame ican Ri uals: The Budge and he Cen al
Bank
In e economics
Sugges ed Ci a ion: Galb ai h, James K. (2025) : Two Ossi ied Ame ican Ri uals: The Budge and he
Cen al Bank, In e economics, ISSN 1613-964X, Sciendo, Wa saw, Vol. 60, Iss. 4, pp. 251-252,
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ZBW – Leibniz In o ma ion Cen e o Economics 251
Le e om Ame ica
DOI: 10.2478/ie-2025-0047
In e economics, 2025, 60(4), 251-252
JEL: H61, E52
© The Au ho (s) 2025. Open Access: This a icle is dis ibu ed unde he e ms o he C ea i e Commons A ibu-
ion 4.0 In e na ional License (h ps://c ea i ecommons.o g/licenses/by/4.0/).
Open Access unding p o ided by ZBW – Leibniz In o ma ion Cen e o Economics.
James K. Galb ai h, Uni-
e si y o Texas, Aus in,
USA.
Two Ossi ied Ame ican Ri uals: The
Budge and he Cen al Bank
As Cong ess wo ked i s way h ough he One Big Beau i ul Bill Ac (OBBBA), while P esi-
den T ump sniped a Je ome Powell and he dolla slid, Eu opeans may jus ly ma el a he
g ea mix u e o a cane and insane ha is he essence o democ acy o e he e. Among he
angled skeins o poli ics, p ocedu e, ins i u ions and ideology a play a e a Fede al Rese e
c ea ed in 1913, which has been independen o he T easu y de ac o since 1951, ye e-
mains accoun able o Cong ess unde a law passed in 1978; a deb ceiling c ea ed in 1917
(and aised coun less imes since); a budge p ocess enac ed in 1974; and o cou se, a P es-
iden , elec ed in 2024, whose lamboyan dis espec o no ms adds lai o he p oceedings.
The Budge Re o m and Impoundmen Con ol Ac o 1974 c ea ed he Cong essional
Budge O ice and o malized a i ual o Budge Resolu ions whose pla onic ideal is “bal-
ance” – equali y o spending and ax e enue. Ac ual balance is ne e achie ed. The budg-
e p ac ice is ins ead o simula e i ue by pai ing ax cu s wi h spending cu s, equi ing one
o be o se , a leas in pa , by he o he . Bu i is di icul o cu public spending. Hence,
he axes cu unde T ump in 2017 ini ia ed a game o make-belie e: he cu s we e “sunse ”
a e eigh yea s, meaning ha hey we e echnically only empo a y. Thus, he con inua ion
o cu en law beyond 2025 is sco ed (by he Cong essional Budge O ice, CBO) as ano he
ax cu – which i mos ly is no – equi ing mo e spending cu s, which a e eal.
Bu wha o cu ? The Pen agon is un o una ely sac ed. Social Secu i y and Medica e a e, o
now, aboo, as T ump has p omised no o ouch hem. Regula ions and adminis a ion coun
o li le. Fo eign aid has been gu ed. Wha is le a e p og ams o he poo and he e y old:
ood s amps (SNAP) and Medicaid. In Ame ica, Medicaid ca es o millions o elde ly in nu sing
homes, and i pays he eigh o u al hospi als ha se e low-income popula ions. As hese
p og ams ake a hi , hunge will inc ease, and nu sing homes and u al hospi als will close.
The e is no good policy eason o cu Medicaid o SNAP. The i ual sa age y se es only
one pu pose: o pa e back he ise in he CBO’s cumula i e p ojec ed budge de ici (and na-
ional deb ) om US $5.5 illion o e en yea s o “only” abou US $4 illion – he “ ax cu s”
s ill ou s ip he spending cu s by ha much. Howe e , ecall ha he ax cu s me ely ( o he
mos pa ) ex end cu en ax p ac ice, while he spending cu s a e a change om cu en
policy. Compa ed o cu en p ac ice (as opposed o cu en law), he OBBBA is nega i e o
he economy – ano he ac ha he CBO igno es. In a c owning absu di y, he CBO wo ks
om a baseline ha assumes changes o spending and axes (wha e e hey may be) ha e
no e ec on he economy: g ow h, in la ion and unemploymen a e assumed o be he same.
Wha , hen, is he poin ? The e is an implici (no, explici ) iew ha public de ici s and deb
a e bad pe se. Com o able people in one ha wi hou cu s o ood and heal h ca e, “ is-
cal i esponsibili y” (and no hunge , illness, despai and suicide) will (somehow) be he
dea h o he Republic. And o pass he bill, he Whi e House had o o e come he esis -
ance o an e en mo e ha d-line ac ion, he “ iscal conse a i es” who would ha e a mo e
spending cu s o “balance he budge ” and “hold he line” on he na ional deb . This g oup
would ha e hi he economy e en ha de , p o oking a c isis o unemploymen and gene al
impo e ishmen . Thei s is he pe spec i e o small- ime local o iceholde s, b ough up on
balanced budge s, bu now a sea on he na ional s age.
In e economics 2025 | 4
252
Le e om Ame ica
In a u he biza e wis , his pe spec i e is ein o ced by op Democ a ic o me T easu y sec-
e a ies Robe Rubin and Law ence Summe s, who in an a icle in The New Yo k Times, poin -
ed o he la e Clin on budge su pluses, i.e. he las ime ax e enues momen a ily exceeded
ede al spending, as examples o good policy. Rubin and Summe s con enien ly o go ha
US go e nmen deb and de ici s supply a wo ldwide demand o a sa e inancial asse – he
p ese a ion o which was a majo policy goal in hei ime. They also do no men ion ha hei
su pluses slowed he economy and led o he 2001 ecession. This is he p oblem o “ iscal
d ag”, o which I eminded a oom ull o economis s a a Whi e House con e ence in Ap il 2000,
jus as he NASDAQ boom was s a ing o un a el. The esponse was a ne ous i e .
How he ha d-line ac ion was b ough in o line I canno say. Likely wi h p omises, o be
hono ed in he nex ound. In ano he a cical ea u e o he OBBBA, he US $4 illion in
p ojec ed ex a de ici s we e allowed and he deb ceiling was aised by US $5 illion. Bu
i is ce ain ha he bipa isan umbling abou de ici s and deb will con inue, so ening he
g ound o an assaul on Medica e and Social Secu i y la e on, a e he mid- e m elec-
ions, o pe haps a ew yea s la e , when T ump is gone.
Meanwhile, T ump seems o ha e no iced ha he s uck-in-neu al high in e es a e policy
o he Fede al Rese e cu s agains he economy o no good eason. In e es paymen s
a e a la ge con ibu o o p ojec ed de ici s and deb , channeling public unds o banks and
bondholde s. A wo s , high in e es a es slow economic g ow h and discou age business
in es men . T ump would like in e es a es o be cu , and he is igh : hey should be. Bu
he o he ossi ied i ual, o “Fed independence” om he Whi e House, makes his h ea s
coun e p oduc i e. Chai man Powell and his colleagues canno old o o e p essu e om
he P esiden wi hou a a al loss o ace. The e o e, hey will no ac , e en i hey ealize (as
hey may) ha he si ua ion jus i ies i .
A mo e sub le bu e ec i e ac ic, consis en wi h US law and cons i u ional p e oga i es,
would be o Cong ess, ac ing “independen ly” o T ump, o ake up a esolu ion manda ing
lowe in e es a es – o o ha e pu such language in he Budge Resolu ion, as Cong ess
h ea ened o do back in 1982.1 Cong ess has legal au ho i y o e he Fed, so such a mo e
would pu he cen al bank unde e ec i e p essu e o cu a es – as i did in 1982 o de use
he h ea .2 This would also o ce Democ a s o choose be ween Fed independence – be-
lo ed o banke s and economis s – and he lowe in e es a es a o ed by middle class o -
e s. Today’s Democ a s would su ely make he mos poli ically damaging choice. Luckily
o hem, he Republicans ha e no igu ed his ou ye .
Finally, he alling dolla . The high dolla has been a bulwa k o Ame ican inancial powe
in he wo ld o decades – and he scou ge o manu ac u ing – suppo ing he eal li ing
s anda d o Ame icans h ough cheap impo s. Bu i s all is good o he s ock ma ke
(since o eign ea nings o US mul ina ionals a e in la ed), good o expo s (hence o manu-
ac u ing and a me s), good o o eign in es men in he Uni ed S a es (since i makes
Ame ican asse s cheape ) and ole able o in la ion so long as domes ic oil and gas p o-
duc ion hold up while p ices decline. Fo he momen , he dolla ’s decline appea s o be
ga he ing s eam, as long- ime dolla holde s (no ably, China) “decouple” by selling down
hei holdings. The all is he e o e likely o con inue – so long as Fede al Rese e Chai
Powell does no mo e o w eck he economy, and he budge , by ying o “sa e” he dolla
and he o e ing Ame ican inancial posi ion in he wide wo ld.
1 The Fede al Rese e’s Fo go en C edi Manda e. (2025). Ha a d Law Re iew, 138(7), 1887–1910.
2 Dupo , B. (2025, Janua y 16). The Volcke igh ening cycle: Explaining he 1982 cou se e e sal. Fede al Rese e
Bank o S . Louis Re iew, 107(1), 1–12.
