President Donald Trump has entered his second term with a bold agenda and unprecedentedly rapid action. In the first month of his presidency, he signed 73 executive orders; he unleashed his Department of Government Efficiency, spearheaded by Elon Musk, to identify waste, fraud and abuse across executive branch agencies; he deployed his foreign policy team to the Middle East to broker an agreement in Ukraine and press for the end of Hamas in Gaza; he freed Immigration and Customs Enforcement to target criminal illegal immigration, and Border Patrol to enforce our southern border. All of that is both good and popular.
But there is a threat haunting the second Trump term.
That threat is economic recession.
Joe Biden left Donald Trump with a shaky economy.
The inflation rate remains high, at 3%, and moving in the wrong direction; interest rates are already high by recent standards, at 4.33%. The Federal Reserve's decision to lower interest rates to inflate the economy in time for the election now looks like jumping the gun.
The Dow Jones Industrial Average is trading at nearly 25 times price to earnings; the so-called Magnificent Seven stocks (Apple, Microsoft, Alphabet, Amazon, Meta, Tesla and Nvidia) average a P/E ratio of above 50. For point of reference, investor extraordinaire Benjamin Graham, mentor of Warren Buffett, recommended that a healthy P/E ratio generally capped out around 15.
The technological advancement of AI -- incredible though it is -- has generated investment that has yet to translate to consummate productivity gains; in other words, there is a good chance that we are in an AI bubble as well. For what it's worth, this isn't a knock on AI; the internet bubble of the late 1990s wasn't an indicator that the internet was overrated, merely that every new technology brings a gusher of investment that eventually ratchets down into the most productive channels. But it is fair to say that many of the stocks most tied to AI will see a decline over coming years.
Meanwhile, the bloat of government spending continues to inject money into an already inflated economy. In 2024, the federal government spent approximately $6.75 trillion. The vast majority of that spending comes in the form of entitlements, means-tested welfare programs and interest on the national debt. DOGE will touch little of this. The reality is that the United States is in a debt spiral from which it is unlikely to emerge without serious fiscal restructuring. And the world is already moving away from the dollar as the world's reserve currency: A report from Brookings Institution found that the dollar now represents just 59% of global reserves, down from 70% in 2000. As the Trump administration pursues sanctions and tariffs, that trend could accelerate.
So, what should Team Trump do? First, the focus should quickly shift toward cutting regulations -- the true sand in the gears of American commerce. Second, the Republican Congress must move with alacrity to enshrine Trump's 2017 tax cuts permanently, ensuring a predictable tax regime for purposes of investment. Third, there should be serious consideration of reevaluating those means-tested welfare programs -- programs that, as House Budget Committee Chairman Jodey Arrington points out, are the chief drivers of our continuing spending crisis.
There is only one path toward economic prosperity for the United States: economic freedom and fiscal sanity. Both can be achieved. But the Trump administration should move fast, because the hole blown into the side of the American economy by consecutive decades of irresponsibility is already sinking the ship.