Will Three Be a Magic Number for Our New Treasury Secretary?

Jesse W. Hurst, CFP^®, AIF^®

January 20, 2025

Source: Wikipedia

"Three is a Magic Number" is a song in Schoolhouse Rock!, which can be seen in Multiplication Rock. In fact, this is the first song from the series, premiering on the pilot episode of Curiosity Shop on September 2, 1971, less than two years before Schoolhouse Rock! made its debut. Those of you who follow these blogs know I am a huge fan of the series, which premiered in my early elementary school years. As a matter of fact, I used different videos from the series to frame a three-part explanation of our federal debt starting on February 12th of this year. These can be found on the blog page of the Impel Wealth website, which I have provided a link to below period. The blogs are in chronological order.

https://www.impelwealth.com/blog

Three Is a Magic Number

Three is a magic number
Yes it is, it's a magic number
Somewhere in that ancient mystic trinity
You get three as a magic number
The past and the present and the future
Faith and hope and charity
The heart and the brain and the body
Give you three as a magic number

Below is a YouTube link to a video for those of you who would like a reminder or would like to hum along to an upbeat and educational song from your younger days.

Schoolhouse Rock #1 Three is a Magic Number

President Trump has named Scott Bessent as his nominee for Treasury Secretary.

Source: Investopedia

Bessent earned a bachelor's degree in political science from Yale University in 1984. After graduation, he worked with Jim Chanos at Brown Brothers Harriman, Kynikos Associates. He joined Soros Fund Management (SFM) in 1991 and was a partner there throughout the 1990s. After resigning from SFM in 2000, Bessent founded a $1 billion hedge fund. Bessent returned to Soros Fund Management and was chief investment officer from 2011 to 2015. He left in 2015 to begin a new firm, Key Square Group, which uses geopolitics and economics to make macro investments.

He is known to be very smart and has a firm grasp of financial markets. In fact, when you peruse headlines across news outlets, they suggest that the financial markets are not only comfortable but somewhat relieved by his selection as Treasury Secretary, as you can see from a few of the headlines below:

‘Huge relief.’ CEOs exhale after Trump taps Scott Bessent to lead Treasury, CNN
Why CEOs Are Cheering Donald Trump’s Pick for Treasury Secretary, Time Magazine
Trump picks Scott Bessent, the 'investor favorite,' for Treasury secretary, Yahoo Finance
Who Is Scott Bessent? Wall Street Is Delighted by Trump’s Treasury Pick, Inc.com

He has voiced a clear interest in executing the Trump agenda but does not intend to be a rubber stamp for the President-elect. He has his own views and ideas, including several related to today's theme of the number three.

He has three goals for the US economy in the coming years. Not surprisingly, they all include the number three.

1) 3% real GDP growth through deregulation, lower energy prices, and giving businesses the confidence to hire and invest

2) Bringing the deficit down to 3% of GDP by the end of the term through cuts to discretionary government spending and better growth

3) Increasing energy production by 3 million barrels daily to bring down overall prices.

So, this is Scott Bessent’s 3/3/3 plan.

Let's examine each of these goals and what they would mean to the economy. According to worldeconomics.com, the United States's GDP Growth Rates over the last five and ten years were 2.2% and 2.5%, respectively. The annual GDP growth rate for the United States from 1990 through 2023 is shown in the chart below provided by Statista.

Remember, GDP is quoted as a real rate of return, meaning net of inflation. A 3% real GDP growth rate, plus inflation, which is largely expected to be in the 2%- 3% range over the coming years, would produce a nominal GDP of 5%- 6%. This would be a higher growth rate than we have consistently experienced in many years and help us shrink the federal debt over time as a percentage of GDP. Please remember, this is just one of many steps we must take to get The United States debt on track to a more sustainable level.

As we review Mr.Bessent’s second goal, bringing the deficit down to 3% of GDP, let's begin by examining how budget deficits have grown since the turn of the century. At the far left side of the chart, you will notice that we actually ran surpluses in the fiscal years 2000 and 2001. In the aftermath of 9/11, budget deficits began again but remained in line with historical norms at 3% or less of GDP. That is until we got to the 2007-2008 great financial crisis, which culminated in the failure of AIG and Lehman Brothers. This also led to government bailouts and deficit spending that we had not seen other than during wartime.

Please remember that a temporary increase in government spending during a crisis is usually warranted to offset some of the decrease in spending in the personal and business sectors. However, as Ronald Reagan noted, "We have long discovered that nothing lasts longer than a temporary government program." Budget deficits exploded higher in 2020 with the onset of the COVID-19 pandemic. Unfortunately, even as the economy experienced near trendline GDP growth and the unemployment rate dropped below 4% once again, government spending never abated, and it even accelerated. The chart above shows that current projections for government debt are expected to continue above 5% of GDP for the foreseeable future.

Dropping budget deficits to 3% of GDP while seeing the economy expand at a faster rate would go a long way toward making our debt levels more sustainable in the long term. There certainly seems to be plenty of room to cut government spending.

Our final chart shows that government spending was under $5 trillion in the calendar year before the COVID-19 outbreak. After multiple rounds of government stimulus finally ended, government spending continued upward from a new base level of greater than $6 trillion. This was a 20% increase in the government’s baseline spending in just two years. I doubt that many household budgets could sustain that kind of spending growth. However, we don't have the luxury of printing our own money.

Source: FRED

The same thing happened in the wake of the 2008 Financial Crisis. If we had restored government spending to its previous trend line after these crises, we would have a balanced budget today. The government does not have a tax revenue problem—it has a spending problem!!

This proves another of Ronald Reagan's points: “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!” We shall see if the newly created Department of Government Efficiency, DOGE, headed by Elon Musk and Vivek Ramaswamy, can cut back some of this ridiculous level of government spending.

Mr. Bessent’s final goal in this trio relates to reducing the price of energy and increasing our energy independence. The theory is that if the United States can create 3 million additional barrels a day of oil and gas, the resulting drop in the price of energy would not only help bring down prices at the pump but also hopefully reduce inflation, as almost everything you buy gets to a store by some combination of truck, train, or boat.

It takes three legs to make a tripod or to make a table stand
It takes three wheels to make a vehicle called a tricycle
And every triangle has three corners
Every triangle has three sides
No more, no less, you don't have to guess
When it's three, you can see
Its a magic number

Our newly nominated Treasury Secretary has set forth an aggressive agenda to set us on the course toward more fiscal stability and greater growth. Let's hope that three will be a magic number for him. Everyone, regardless of political party, should want him to be successful, as all would benefit, especially those at the lower end of the wage and wealth spectrum.

When Treasury Secretary Janet Yellen took office, she was primarily a known entity, thanks to her time serving as Chair of the Federal Reserve Board. I wanted to bring you this background and information about Scott Bessent, as he is less known but someone you will hear much about in the future. I thought it was important to know and understand as we continue “Moving Life Forward.”

Senior Wealth Manager

Will Three Be a Magic Number for Our New Treasury Secretary?

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