The Trump Administration's Ban on Central Bank Digital Currency

Since Donald Trump occupied the Oval Office for the second time on January 20th, 2025, he has signed a significant number of Executive Orders covering a very wide range of issues.  As someone who has been following the development of digital currencies for many years, one Executive Order that caught my eye was "Strengthening American Leadership in Digital Financial Technology" which was signed on January 25th, 2025:

Inside this executive order, we find this under section 1 (v) (my bolds throughout):

 

"...taking measures to protect Americans from the risks of Central Bank Digital Currencies (CBDCs), which threaten the stability of the financial system, individual privacy, and the sovereignty of the United States, including by prohibiting the establishment, issuance, circulation, and use of a CBDC within the jurisdiction of the United States."

 

The Executive Order defines Central Bank Digital Currencies as "a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank."

 

In Section 5, we find this:

 

"a)  Except to the extent required by law, agencies are hereby prohibited from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad.

 

(b)  Except to the extent required by law, any ongoing plans or initiatives at any agency related to the creation of a CBDC within the jurisdiction of the United States shall be immediately terminated, and no further actions may be taken to develop or implement such plans or initiatives."

 

It is important to note that the Federal Reserve is not an agency of the United States federal government and that it exists because of an act of Congress. According to the Fed, it 

"...enjoys a unique public/private structure that operates within the government, but is still relatively independent of government to isolate the Fed from day-to-day political pressures in fulfilling its varying roles. As stated in The Federal Reserve System Purposes & Functions:

The Federal Reserve System is considered to be an independent central bank. It is so, however, only in the sense that its decisions do not have to be ratified by the President or anyone else in the executive branch of the government. The entire System is subject to oversight by the U.S. Congress….the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government."

  

While this particular Executive Order isn't as attention-grabbing as the Executive Orders that covered issues like America's withdrawal from the World Health Organization and ending DEI programs, to those of us that have been paying attention to the unceasing movement toward global adoption of central bank digital currencies, this could be a game-changer.  In my opinion and in light of this development, there could be one of two scenarios that play out:

 

1.) with the American economy being the largest economy in the world, Washington's ban on central bank digital currencies could slow up adoption of CBDCs by other economies.

 

2.) the creation of a crisis in the world's financial markets which could be used to negate the Trump Administration's ban on CBDCs, all in the name of rescuing the global economy.

 

In any case and until proven otherwise, I think that the Trump Administration's ban on CBDCs has done all of us a great (and perhaps temporary favour) by preventing the world's most influential central bank from issuing a Central Bank Digital Currency within the jurisdiction of the world's largest economy.  You can just imagine central bankers' heads exploding all over the world thanks to this development.

America's Jews on the Trump Administration

With the significant influence of the pro-Israel lobby in the United States and Congress doing its best to equate anti-Semitism and the anti-Israel movement, I thought that it would be interesting to see how America's Jewish community feels about the Trump Administration, its agenda for Israel and its support for Israel.  A poll taken on the day that the 2018 mid-term election was held gives us a strong sense of the sentiments of American Jews on issues of importance.

Let's look at the background of the poll which was completed by J Street.  The poll sampled the views of 1,139 Jewish voters with an oversample of voters aged 18 to 34, all of whom voted in the midterm elections.  Of the sample, 35 percent described themselves as Reform, 30 percent stated no particular denomination, 20 percent described themselves as Conservative and ten percent described themselves as Orthodox with the remaining 6 percent describing themselves as Reconstructionist or Other.

Now, let's look at some key questions:

Generally speaking, do you think that things in this country are going in the right direction, or do you feel things have gotten pretty seriously off on the wrong track?

Right track - 26 percent

Wrong track - 74 percent

When asked what issues facing the United States are the most important, here are the results:

Health care – 43 percent 

Gun violence - 28 percent

Social Security and Medicare - 21 percent

The economy - 19 percent

Immigration - 18 percent

The environment - 14 percent

Taxes - 11 percent

Education - 8 percent

The deficit and government spending - 8 percent

The Supreme Court - 8 percent

ISIS and terrorism – 7 percent

Israel - 4 percent

Russia - 3 percent

Iran - 1 percent

Other – 8 percent

I find it interesting, particularly given the amount of attention that Congress and the President pay to Israel, Russia and Iran, that a very small proportion of America's Jews feel that these three issues are important.

Do you approve or disapprove of the way Donald Trump is handling his job as president?

Strongly approve - 13 percent

Somewhat approve - 13 percent

Somewhat disapprove - 10 percent

Strongly disapprove - 64 percent

Do you approve or disapprove of the job Congress is doing?

Strongly approve - 5 percent

Somewhat approve - 16 percent

Somewhat disapprove - 28 percent

Strongly disapprove - 50 percent

With total presidential disapproval of 75 percent and total Congressional disapproval of 79 percent, America's Jewish community has a strong negative impression of the current administration.

Let's now look at the favourability ratings of some people and political organizations with 100 meaning a very warm, favourable feeling and 0 meaning a very cold, unfavourable feeling (i.e. higher favourable and lower unfavourable scores are better):

Given that Jared Kushner is Donald Trump's point man on Middle East and Israel issues, it is interesting to see that he gets an extremely low favourability score when it comes to America's Jewish community.

In closing, let's look at how America's Jewish community feels about key issues facing Israel and the Middle East.  

Do you think Prime Minister Benjamin Netanyahu's policies have helped Israel's relations with the United States, hurt Israel's relations with the United States, or had no impact on Israel's relations with the United States?

Helped - 32 percent

Hurt – 31 percent 

No impact – 35 percent

Don’t know/refused – 2 percent

People often talk about being "pro-Israel." Do you think someone can be critical of Israeli government policies and still be "pro-Israel"?

Yes - 84 percent

No - 16 percent

Do you support or oppose the agreement (the JCPOA) that the United States and other countries made during the Obama Administration to lift economic sanctions against Iran in exchange for Iran dismantling its nuclear weapons program and allowing international inspectors to monitor Iran's facilities?

Strongly support – 28 percent

Somewhat support - 43 percent

Somewhat oppose  - 16 percent

Strongly oppose – 13 percent

Don’t know/refused – 1 percent

As you may know, President Trump withdrew the United States from the nuclear agreement that the United States made with Iran and five other countries. Do you support or oppose Trump's withdrawal from the agreement?

Strongly support - 17 percent

Somewhat support - 16 percent

Somewhat oppose  - 26 percent

Strongly oppose – 41 percent

Don’t know/refused – 1 percent

You will note that America's Jewish community is not a huge fan of Benjamin Netanyahu and that the majority supported the implementation of the JCPOA and are opposed to Donald Trump's withdrawal from the nuclear agreement with Iran.

While the Trump Administration continues to implement policies that they believe play to their Jewish base, outside of the heavy influence of the pro-Israel lobby in Washington, there are actually a relatively small percentage of Jewish Americans that support the Trump agenda for Israel and the greater Middle East.

The Trump Tax Plan - Kicking the Debt Can Further Down the Road

The Trump Administration's "Unified Framework for Fixing Our Broken Tax Code" has been analyzed by the non-partisan Tax Policy Center and their findings are rather interesting in this age of a $20 trillion plus national debt.  In this posting, rather than focusing on the impact of the tax plan on individual and corporate tax levels, I will be focusing on the impact that the proposed tax changes will have on federal revenue since revenue is one of the keys to maintaining fiscal balance.

Let's start by looking at the most recent data showing the breakdown of the federal debt:

Of the $20.245 trillion in debt current to the end of September 2017, $14.199 trillion is in the form of marketable debt.

Here is a graphic showing the current debt-to-GDP ratio:

Now that we have that information, we can put the Trump tax plan and its impact on the national debt into perspective.

As we now know, the new tax framework would see the current seven individual income tax rates collapse into three rates, 12, 25 and 33 percent, depending on income level.  As well, among other things, the Trump tax plan would increase the child tax credit, repeal both the individual and corporate alternative minimum taxes, repeal the estate tax and reduce the corporate tax rate from its current 35 percent.   Owners of pass-through entities including sole proprietorships and partnerships (among others) could be elected to be taxed at a flat rate of 15 percent on their pass-through income rather than under regular income tax rates (which would be 33 percent).

Let's look at the impact on revenue.  The Tax Policy Center estimates that the Trump tax plan would reduce federal tax revenues as follows (all estimates are before accounting for macroeconomic feedback effects):

1.) Corporate Tax Revenue - by dropping the headline corporate tax rate, Washington would see its corporate tax revenue drop by $145.9 billion in 2017, rising to $289.8 billion in 2021.  Total corporate tax revenue would drop by $2.633 trillion over the period from 2016 to 2026 and by $3.231 trillion over the period from 2027 to 2036. 

2.) Individual and Payroll Tax Revenue - all proposed changes to the individual and payroll tax regime would result in Washington seeing its individual tax revenue drop by $198.3 billion in 2017, rising to $327.9 billion in 2021.  Total individual tax revenue would drop by $3.343 trillion over the period from 2016 and 2026 and by $5.385 trillion over the period from 2027 to 2036.

If we take the macroeconomic feedback effects using the Penn Wharton Budget Model into account, (i.e. the impact of tax changes on economic growth rates which range from an increase 1.0 percent in 2017 to a decrease of 0.5 percent in 2026) the total revenue losses between 2016 and 2026 will total $5.952 trillion or 2.6 percent of GDP and $10.312 trillion or 3.0 percent of GDP between 2027 and 2036.  These tax measures will have an impact on the deficit and debt as follows:

1.) Deficit - the deficit will increase by a total of $7.004 trillion between 2016 and 2026 and $15.138 trillion between 2027 and 2036.

2.) Debt - the debt will increase by a total of $22.142 trillion between 2016 and 2036.  This is a cumulative increase in the debt-to-GDP ratio of 55.5 percent over the two decade period.

Here is a table showing the full analysis with and without taking macroeconomic feedback effects into account:

Given the already high sovereign debt levels of the United States and that there is likely to be repeated economic contractions over the next two decades that have not been accounted for in this analysis and the fact that higher debt levels may result in investors demanding a higher interest rate on Treasuries, it is quite apparent that the Trump tax plan will have to be accompanied by spending cuts if Washington wishes to retain any sense of fiscal balance.  So far, the past few administrations suggest that Washington is quite reluctant to make the spending cuts necessary to  achieve even a semblance of a balanced budget, preferring to kick the "debt can" further and further down the road.  

The Health of Brand USA

With the Trump Administration taking a great deal of criticism for its policies, it begs the question; how has the American brand been impacted.  In Pew's most recent versions of its Global Attitudes and Trends survey, we get a sense of how the public in many nations regard the United States, a view that is quite important in this time of endless criticisms of many nations by Washington.

The poll was taken during the first quarter of 2017 and respondents were interviewed by telephone or with a face-to-face interview.  Between 1000 and 1500 people in 37 nations took part in the survey with a total of 40.477 respondents.  Pew Research Center international studies target the permanent adult population (aged 18 and older) with attempts to cover as much of the adult population as possible, limiting their coverage to areas that are extremely remote or subject to insecurity (i.e. parts of Pakistan).  The margin of error is generally between 3.0 and 5.0 percentage points 19 times out of 20.  With that background, let's look at how the world views "Brand America".

Let's start with a look at how various regions and countries view the United States:

A global median of 49 percent of respondents held a favourable view of the United States, a significant drop from the median of 64 percent during the later years of the Obama Administration.  Let's look at a breakdown by region:

1.) Europe - the median for Europe was 52 percent unfavourable and 46 percent favourable.  Four out of ten EU countries surveyed had a more positive view of the United States; Poland (most favourable at 73 percent), Hungary, Italy and the United Kingdom.  The remaining six nations surveyed had a negative view with Germany having the highest unfavourable rating at 62 percent.

2.) Asia - the median for Asia was 57 percent favourable and 23 percent unfavourable with all 7 nations surveyed having a more positive view of the United States.  The the most positive view of the United States was held by Vietnam at 84 percent with only 11 percent negative. 

3.) Middle East - the median for the Middle East was 64 percent unfavourable and 27 percent favourable.  Only one of the five nations surveyed had a positive view of the United States; Israel at 81 percent.  The most unfavourable rating came from Jordanians with an 82 percent unfavourable view.

4.) Africa - the median for Africa was 56 percent favourable and 26 percent unfavourable with all six nations having a positive view of the United States.  The most positive view of the United States was held by Nigeria with a 69 percent favourability rating.

5.) South and Central America - the median for South and Central America was 47 percent favourable and 38 percent unfavourable.  Four of the seven nations surveyed had a more positive view of the United States; Columbia (most favourable at 51 percent), Peru, Brazil and Venezuela.  The remaining three nations had a negative view of the United States with Mexico having the highest unfavourable rating at 65 percent.

6.) Canada - 43 percent favourable, 51 percent unfavourable.

7.) Russia - 41 percent favourable, 52 percent unfavourable.

It is interesting to see how outsiders' view of the United States varies with age.  In 16 of the 37 nations surveyed in 2017, young adults between the ages of 18 and 29 have a more favourable view of the United States than their older counterparts, sometimes by a very wide margin.  For example in France, 64 percent of people between the ages of 18 and 29 viewed the United States positively compared to only 40 percent of people aged 50 and older.  As well, there is a gender gap with men expressing a more positive opinion of the United States that women in ten nations; in the case of Australia, 58 percent of men viewed the United States positively compared to only 38 percent of women.

Let's close with a table showing how much the world has changed its view of the United States with the change in political leadership in 2017:

As you can see, of the 37 nations in the study, respondents in only six nations have a more positive feeling about the United States since the Trump Administration took control with Russia heading the group with a 26 percentage point improvement in favourability, rising from 15 percent to 41 percent despite the ongoing anti-Russia sentiment in the United States.  On the other hand, Mexicans view of the United States took the biggest plunge with favourability dropping by 36 percentage points from 66 percent to 30 percent.

It is interesting to see how Brand America is under pressure during the first six months of the Trump Administration.  While nearly half of respondents around the world still give a positive overall rating to the United States image, there has been a substantial growth in the number of people, particularly among America's traditional allies in Europe and the Middle East (save Israel), who believe that the United States is not following a favourable path.  That is particularly evident when one looks at Donald Trump's international confidence rating as shown here:

The Biggest Fallacies of Washington's Budgets

The release of the proposed fiscal 2018 federal budget from the Trump Administration revealed, once again, why Washington's annual budgets are barely worth the paper that they are written on.  While the budget proclaims that it will help reduce the threat to American prosperity from the $20 trillion federal debt that was inherited from the Obama Administration, it makes broad economic assumptions that will be the undoing of this latest iteration of fiscal (mis)management from Washington.

Let's start by looking at the assumptions made in the budget from Table S-9 Economic Assumptions found on page 45:

You may not notice the weakness in these assumptions immediately, however, if you look at the line showing the year-over-year percent change in nominal GDP you will notice some very optimistic projections.  The budget assumes that nominal GDP will grow by between 4.3 percent and 5.1 percent between fiscal 2017 and fiscal 2027 and that real GDP will grow by between 2.3 percent and 3.0 percent over the same timeframe.

Let's look at the real world.  According to FRED, this is what has happened to nominal GDP growth rates since the end of the Great Recession:

Since the fourth quarter of 2009, nominal GDP has grown by an average of 3.4 percent over 30 quarters of economic expansion, well below the rates seen in prior expansions as shown here:

In addition, nominal GDP actually contracted by 3.1 percent and 3.2 percent on a year-over-year basis during the first and second quarters of 2009.

  

Here's what has happened to real GDP growth since the end of the Great Recession:

Since the first quarter of 2010, real GDP has grown by an average of 2.1 percent, again, well below the rates seen in prior expansions as shown here:

During the Great Recession, real GDP contracted by as much as 4.1 percent on a year-over-year basis during the first quarter of 2009.  

Not only is the assumption of economic growth rates used in the 2018 fiscal budget overly optimistic, there is one other assumption that is completely erroneous; the assumption that the economy will continue to expand without ceasing until fiscal 2027.  Let's look at a chart which shows the length of economic expansions (trough to peak) going back to the 1850s:

The longest trough to peak was 120 months during the expansion which began after the March 2001 to November 2001 recession. Over the period from 1854 to 2009, there were 33 economic cycles with an average trough to peak duration of 38.7 months.  As far as the latest economic cycle goes, we are now 95 months into the expansion and if the assumptions used in the fiscal 2018 budget hold, the economic expansion will be a whopping 222 months long, nearly double the longest expansion in the past century and a half.

While I'm sure that there are those who would love to blame this on yet another Trump Administration blunder, here is a screen capture from the fiscal 2017 final Obama Administration budget showing that they made similarly erroneous assumptions on Table S-12 (page 163):

You will notice that while the budget makes no allowance for any kind of economic contraction going out to fiscal 2026, it does make somewhat more realistic assumptions when it comes to both nominal and real economic growth rates.

When one reads through government budget documents, it is always key to closely examine the assumptions used.  If these assumptions do not transpire, the projections of future budgetary improvements like dropping deficit levels and improving debt accumulation rates are completely unattainable.  But then again, what did you really expect from politicians?