Debt Digest | The Pentagon’s Investment Fund
Links & Fiscal Facts
Economic growth won’t offset the OBBBA’s deficit impact. German media outlet Tagesschau’s Nina Barth quotes Boccia on the Trump administration’s economic growth assumptions behind the OBBBA: “The Trump administration’s assumptions about economic growth resulting from the law seem completely pulled out of thin air, says Romina Boccia [...] ‘So I wouldn’t bet on economic growth offsetting the impact of this bill on the deficit,’ said the economic expert.” As the Committee for a Responsible Federal Budget (CRFB) explains: “The White House Council of Economic Advisers (CEA) has estimated the President’s agenda would reduce deficits by about $5.5 trillion. But this estimate appears to include at least two calculation errors, massively overstates potential growth, fails to account for higher interest rates, relies on spending cuts and regulatory cuts that have not happened (and are not part of OBBBA), and counts on tariffs that have recently been ruled illegal. Adjusting for these issues, we find the full agenda – including macroeconomic effects – would increase deficits by more than $3.5 trillion if OBBBA is made permanent. A $9 trillion swing [see figure below].”
Bring back presidential reorganization authority. Thomas A. Schatz, the president of Citizens Against Government Waste (CAGW), reminded Congress of a once-common tool—presidential reorganization authority. Until 1983, presidents would regularly submit their plans for reorganizing the executive branch that would take effect unless either chamber passed a disapproval resolution. However, in 1983, the Supreme Court ruled this expedited process unconstitutional, and since 1984, no president has received reorganization authority (e.g., President Obama tried and failed in 2012). Rep. James Comer (R-KY) and Sen. Mike Lee (R-UT) recently introduced the Reorganizing Government Act of 2025, which would allow presidential reorganization plans to advance with a simple up-or-down vote by Congress. As Boccia has written: “The executive is well-equipped, with congressional guidance and support, to review federal government operations, streamline duplicative functions, reduce improper payments, and close off avenues for fraud. In the meantime, Congress should focus on more substantive spending reductions necessary to stabilize the debt and keep interest rates and inflation risks in check.”
Bond markets aren’t ignoring Washington’s fiscal recklessness. Paul Weinstein Jr., a former Clinton White House official, warns that America’s deteriorating fiscal outlook could rattle bond markets—raising interest rates on Treasuries and driving up borrowing costs for everyday Americans. He points out that warning signs are already flashing: “The U.S. dollar index, which measures the value of the greenback against six foreign currencies, has dropped more than 8% since January. At the same time, U.S. bond yields have been rising, defying the economic pattern that defined the previous quarter-century.” Weinstein concludes: “This is perhaps the most important reason everyone should be so worried about the Republicans’ Big Beautiful Bill. It would signal to an already skittish bond market that, far from taking the deficit seriously, Washington can’t be stopped from digging its own hole.” Boccia and Lett have previously noted that these signals could transform into a full-blown debt crisis: “Should a bond yield surge be sudden, large, and unmitigated, this self-perpetuating cycle can quickly escalate into a fiscal crisis.”
Pressuring the Fed won’t fix the fiscal mess. The Wall Street Journal’s Greg Ip addresses President Trump putting pressure on Fed Chair Jerome Powell to cut interest rates, partly motivated by his wish to lower the government’s borrowing costs. Ip writes: “[H]istory suggests that when a central bank over time follows a president’s dictates rather than its own judgment, the economy pays a price. Though maybe not soon enough to matter to the president.“ As we’ve highlighted in the last edition of the Debt Digest, attempts to pressure the Fed and shift blame won’t address the root problem. Instead of moving toward fiscal dominance, the administration and Congress should focus on restoring fiscal discipline. Otherwise, the United States risks severe inflation and economic decline as monetary policy succumbs to fiscal demands.
The Pentagon’s investment fund. CNBC reported last week that the Defense Department has agreed to buy $400 million worth of shares in MP Minerals, a rare earth mining company. American Action Forum’s Douglas Holtz-Eakin writes: “Why the hell does the Department of Defense (DoD) have $400 million lying around that it can plow into some random venture? Answer: This is not your father’s DoD. This DoD has an Office of Strategic Capital (OSC, or Office for Squandering Cash), which is in the business of financial engineering of all sorts, including loans and loan guarantees for its friends.” We’ve previously criticized a US sovereign wealth fund (SWF) idea, highlighting the dangers of the government owning shares in publicly traded companies—yet the Pentagon seems to have its own version of an investment fund. Holtz-Eakins also questions the rationale behind the decision: “If the Pentagon wanted to agree to a contract to buy rare earths and magnets for 10 years, it would be understandable. And if the terms were this generous, MP Materials could easily get the private capital needed to finance expansion.”
