The Latest on Government Borrowing and Printing

August 2, 2025

By Robert Wiedemer

Borrowing About the Same as Last Year

This report is simple. The deficit is now running equal to last year’s deficit as of the end of June. It was running ahead of last year for the previous 8 months but slowly closed the gap by June. But, even if it is ONLY the same as last year, that’s still $2 billion in economic stimulus that will help drive economic growth.

I will be writing an article on economic growth where I suggest that, even with massive stimulative deficits, the US may be hard pressed to break above 2% annual GDP growth going forward.

Despite the Criticism from President Trump and Others, the Fed Is Actually Working Hard to Keep Long Term Rates from Rising by Destroying a Lot Less Money

President Trump, along with others, is criticizing the Fed for not lowering rates. The reality is that the Fed is doing a lot to lower the rate that matters – the 10-year rate. Sure, the Fed didn’t lower the overnight rate this week and Trump and others are blasting the Fed for that.

But, again, the overnight rate is basically irrelevant to mortgages and the investment community. What matters is the 10-year rate and the way to lower the 10-year rate is to print money to buy bonds.

As I have said over the last couple of years, the Fed isn’t buying bonds and is instead selling bonds. Those sales have driven up the long term rate since 2022. However, as I have said earlier, starting last June 2024 the Fed reduced the amount of bonds they were selling from $85 billion a month to $60 billion. In February 2025 they dropped it to $30 billion. And now, it looks like they have just about stopped selling bonds.

From June 4 to July 24, almost two months, they only sold $15 billion in bonds.

This has had a huge impact. Notice that, since the reduction in bond sales started in June last year, the 10-year rate has not gone up much. It’s hit 5%, but only briefly. Continued reductions in bond sales are what’s kept it from going over 5%.

Because of the massive demand for money to fund the deficit, our long-term interest rates are guaranteed to go up. The only way to keep them from going up is to print money, or if we are destroying money (by selling bonds) to stop destroying money. And that’s what’s happened.

I don’t think Jerome Powell is doing this to please Trump, since he started this under Biden, and from what I can tell, he and Trump are not on each other’s Christmas gift lists.

However, Powell is aware that rates of over 5% will damage the bond market, the economy and the stock market. He’s definitely focused on that, whether it makes Trump happy or not.

Will we need to start printing money soon?

Yes, the drop in sales is just a prelude to printing money. I had said a while back that I thought this could occur as early as Q1 2025. We shall see. Either way, when Trump puts in his new Fed Chair in May, it will likely occur soon after.

Will Trump Fire Powell?

I don’t think so. Both Wall Street and the Supreme Court I suspect back Powell. So, Trump will bully Powell, but I don’t think he will try to toss him early. An early toss would upset Wall Street. However, I think Trump’s pick for a new Fed Chair will cheer Wall Street as the new Chair will likely push for lower rates.

However, and this is important, there may not be much the new Fed Chair can do to lower rates a lot. The Fed will likely have to print a decent amount of money just to keep rates from going up. They may not want to print a bunch more for fear of rattling Wall Street and kicking off more inflation.

Also, the Fed Chair has only one vote. A Trump appointment will likely have trouble getting other Board member’s votes if he is too far out of line of normal Fed thinking on money printing.

And here we have a long-term problem. Over time, we will need more and more money to fund the government deficit and our normal borrowing needs. To get that money at rates below 6% we will need to increase the supply by printing more and more money. Eventually, that will create monetary inflation. Exactly when is hard to say since we have been able to print vast amounts of money without creating monetary inflation. But I’m watching closely.