Analysts at the Congressional Budget Office recently took a closer look at President Trump’s landmark budget reconciliation known as the Big, Beautiful Bill…and concluded it’s even uglier than it appeared after their initial passing glance.

Upon completion last week of its second – and more comprehensive – review, the CBO revealed the bill actually could add about $2.8 trillion to deficits over the next 10 years…roughly $400 billion more than the agency’s previous estimate of $2.4 trillion.

Notably, the first number did not account for the manner in which the bill would impact the economy nor the consequential effects on the budget from those impacts. The scope of the initial estimate was limited to the bill’s prospective direct impact on the budget. The updated “dynamic” estimate seeks to account, as well, for the potential macroeconomic effects of the bill, including its anticipated impacts on inflation, interest rates and overall economic growth.

And the CBO’s conclusion? Life under the Big, Beautiful Bill is poised to become even more fiscally precarious.

CBO Sees Legislation Boosting Real GDP by Just 0.5% Over the Next Decade

The analysis is replete with details, but there are a couple of “punchlines” readers would do well not to miss. One is that, in the estimation of the agency, the combination of tax cuts and spending cuts – particularly those to Medicaid and food stamps – would boost real GDP over the next decade by just half a percentage point…far less than the 3%-or-so gain projected by the White House’s Council of Economic Advisers.

Another zinger in the CBO’s fresh review is that the overall cost of the bill could cue a projected 14-basis-point bump in 10-year Treasury rates. This jump would be a direct result of not only the static increase in the nation’s debt load but also the demand for higher rates by investors in America’s debt…investors who expect to be better compensated for assuming greater perceived risk. The pricier debt service that comes with these higher rates is the principal driver of the $441 billion increase to deficits the CBO now sees as likely.

Public’s Share of Federal Debt Poised to Reach 124% by 2034

As for the consequential impact to the public’s share of the federal debt, that now is projected to rise by $3.3 trillion over the next 10 years, up from the CBO’s previous estimate of $3 trillion. An associated implication, says the CBO, is that the ratio of public debt to GDP is poised to rise from 117% in 2034 (based on a January CBO analysis of the nation’s long-term fiscal outlook) to 124%…a figure that many economists say would redline the nation’s already overworked debt engine.

As you might imagine, members of the administration have been critical of the CBO’s dour prognostications. White House spokesman Kush Desai recently suggested the agency seems prone to overlooking key features of the president’s economic priorities that could go a long way to ensuring the nation’s debt does not worsen in the years to come:

“The Trump administration remains committed to an America First agenda of tariffs, rapid deregulation and domestic energy prediction that ushered in historic job, wage and economic growth during President Trump’s first term — prosperity that CBO had also failed to predict back in 2017.”

Except there are few comprehensive analyses of the Big, Beautiful Bill that reach the same optimistic conclusions at which Desai and others appear to have arrived. As the National Review said shortly after the CBO released its most recent assessment of the legislation:

“Not a single independent analysis comes anywhere close to matching Republicans’ rosy growth assumption. Accordingly, the consensus among budget experts is that the megabill will be anything but deficit-neutral, adding trillions of dollars to the national debt by 2034.”

Budget Watchdog: Bill “Not Paying for Any of Itself”

Among those independent analyses at odds with the administration’s outlook (in addition to the CBO’s detailed scrutiny, of course) is that of the Committee for a Responsible Federal Budget, whose senior vice president and policy director, Marc Goldwein, lodged this pointed criticism:

“It’s not only not paying for all of itself, it’s not paying for any of itself.”

The ongoing process of examining – and reexamining – the Big, Beautiful Bill to understand the degree to which it may exacerbate the nation’s already fraught fiscal outlook is hardly without value. But there’s a “bigger picture” element to this discussion of which prudent investors should not lose sight: namely, that even if, by some miracle, the bill does prove to be “deficit-neutral,” that wouldn’t change the nation’s longstanding unsustainable fiscal trajectory.

It’s a fiscal trajectory that’s likely to become an even more profound and impactful stressor of capital markets as politicians continue to put off dealing with it in any meaningful way; but also, a trajectory that could significantly catalyze select safe-haven assets which live entirely outside the U.S. financial system…including – or perhaps especially – gold.

Bank of America Says Debt – Not Geopolitical Risk – Will Be the Catalyst of $4,000 Gold

As a structural portfolio component, some of investing’s most dynamic minds, including Ray Dalio and “Big Short” prophet Porter Collins, are “all in” on gold largely because of its capacity to thrive amid fiscal chaos. So are analysts at a number of investment banking giants, including those at Bank of America, who believe America’s fiscal fragility…rather than ubiquitous geopolitical tension…will be the primary reason gold reaches $4,000 per ounce within the next 12 months.

That Uncle Sam’s fiscal profligacy trump’s kinetic war as a reliable gold driver speaks volumes about not only how unfortunate our macro debt outlook has become…but also how important it may be to be sure the yellow metal is among one’s holdings in the years ahead.

This post is created and published for general information purposes only. The Gold Strategist blog and Bob Yetman disclaim responsibility for any liability or loss incurred as a consequence of the use or application, either directly or indirectly, of any information presented herein. Nothing contained in this post – or any other post featured at this blog – should be construed as a solicitation or recommendation to engage in any financial transaction. You should seek the advice of a qualified professional before making any changes to your personal financial profile.