February seventeenth, two thousand twenty-five

I. Foundation 

resistance to change and hence greater dependability for the results shown in the past.

How much spending can Musk’s DOGE actually cut?

In the current U.S. fiscal year, about 25% of government spending is discretionary spending (Discretionary Spending), while the remaining 75% is mandatory spending (Mandatory Spending), including Medicare, Social Security, and interest payments on fiscal debt (Interest on Fiscal Debt).

In other words,What the “Doge” team can actually control is only the discretionary spending of 25%.

If they are to fulfill Trump’s promise not to cut any spending related to Social Security, that would mean only part of this 25% could be adjusted.

In addition, 12% of discretionary spending is defense spending (Defense Spending). Given the current escalation in geopolitical tensions, the United States is unlikely to cut its defense budget and may even increase it further. In other words, The only spending that can actually be cut is about 1 trillion dollars of non-defense discretionary spending (Non-Defense Discretionary Spending).

This also means that Elon Musk’s initial promise to cut 1 trillion dollars in spending is actually unachievable. If they truly leave mandatory spending untouched, there will be little left to cut.

Bloomberg’s own model currently estimates that the final result will be cuts of roughly 4000 hundred million dollars per year.

Bessent once mentioned the Grace Commission, an investigative commission established by Ronald Reagan in 1982 to study how to improve government efficiency and reduce fiscal spending. In today’s dollars, the commission’s final report (the Grace Report),recommended that 1.3 trillion dollars in fiscal spending could be cut over three years, or about 4000 hundred million dollars per year.

If Bessent can accomplish this, it would actually count as a major success (his promise was to cut “1 trillion dollars,” but he never explicitly said “1 trillion per year.”

Cuts of 4000 hundred million dollars are equivalent to 40% of non-defense discretionary spending and would reduce the federal debt-to-GDP ratio (Debt-to-GDP Ratio) from the current baseline projection of 130% to about 100%. In other words, compared with the baseline projection, the debt-to-GDP ratio would fall by 30 percentage points.

2025.02.17

II. Insights 

Our Viewpoints and ideas on market.

The not-so-optimistic 3-3-3 plan

At present, the United States is already at full employment (Full Employment), so GDP growth is primarily determined by two factors: labor force growth (Labor Force Growth) + productivity growth (Productivity Growth).

The United States is carrying out mass deportations of workers, which is effectively lowering the labor force growth rate. Two structural factors also mean the U.S. labor market will not grow in the coming years:

1/ Mass deportations of immigrants 2/ Acceleration of the baby-boomer retirement wave

This means that, to achieve the planned 3% GDP growth, all growth would have to come from productivity..

However, even if productivity growth is strong, it may only reach 1.5% - 2%, meaning that 3% economic growth is unattainable under the current policy framework.

Second, the fiscal deficit (Deficit) outlook is also not encouraging.

On one hand, GDP growth is slowing, which will reduce tax revenues; on the other, the retirement of the baby-boom generation will automatically increase benefit spending such as Social Security and Medicare. For details, see 250217How much spending can Musk’s DOGE actually cut?

The Trump administration has clearly stated that it will not cut Social Security or Medicare spending + low-interest debt issued over the past few years is about to be repriced, and the corresponding interest costs will rise sharply.At least for now, the “3-3-3” plan is still just a Clever Slogan, and the chances of actually implementing it are slim.

They will have to come up with another approach.

2025.02.17

III. Market Pulse 

Our latest Comments on the economic and market environment

Note: All content herein is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.