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When Donald Trump won the American election last year, a consultancy called Penta created a “war room” to track what policies really mattered. “Where there’s a wealth of information, there’s often a poverty of attention,” Kevin Madden, a Penta strategist told the FT. “The challenge for corporate leaders is prioritising.”
Too true. This week has delivered a wild whirl of announcements: a putative 25 per cent tariff on Europe; an outrageously exploitative mineral deal with Ukraine; threatened firings of federal workers. And so on.
This reflects the Trump team’s deliberate strategy of “flooding the zone” with eye-catching news, to destabilise opponents. Thus what investors must ask is what is being overlooked in this distracting whirl — because it seems too boring or complex to grab headlines.
Take the once-arcane issue of “impoundment”. This term describes what happens when a president refuses to spend money authorised by Congress for various plans and instead simply retains or “impounds” it.
Until recently, few politicians, investors or voters ever worried about that. No wonder. As Julian Zelizer, a Princeton historian, notes, the practice has been sporadically used before, with presidents ranging from Thomas Jefferson to Harry Truman to John Kennedy impounding small(ish) lumps of military spending. But when Richard Nixon resigned, a law was passed to ban impoundment. Since then, Congress has wielded ultimate fiscal power.
However, Trump said last year that he did not accept the 1974 law. So, when his Doge cost-cutting team began their spending review-cum-rampage in January, the White House tested “impoundment” by freezing some funding flows.
That was partly overturned by courts. But this March the issue could return on a much bigger scale, potentially sparking a constitutional battle or market jolt. “It’s a crisis in the making,” one legal scholar tells me. The reason is the 2025 and 2026 fiscal budget process. This week, Mike Johnson, Republican House Speaker, passed a budget resolution that projects massive spending and tax cuts.
On paper, this seemed like a political quasi miracle. After all, Johnson has a wafer-thin majority, congressional Democrats are rejecting (almost) anything that Trump wants — and the Republicans are split between techo-libertarians (like Elon Musk), Maga populists (like Steve Bannon) and old-style conservatives.
But in reality, Johnson’s “triumph” was more about style than substance, since the granular budget details must now be hammered out before a March 14 deadline. This will be extremely hard, if not impossible.
For notwithstanding Doge’s attention-grabbing antics, the team has hitherto only found a few billion dollars of “waste” to cut, it seems. Meanwhile, the debt is already $36tn — and rising — and the annual deficit around $1tn.
Thus if Congress wants to meet Maga demands for debt cuts, the plan must either slash benefits and/or the military budget and/or impose higher taxes on the rich. Populists, like Bannon, favour the latter; techno-libertarians the former. And while Scott Bessent, Treasury secretary, gamely insists that higher growth will square this near-impossible circle, that seems unlikely given tumbling consumer confidence.
So March 14 looms. The political betting site Kalshi posits a 56 per cent chance of a government shutdown — odds that have risen since Johnson passed his bill. Yes, really.
Of course such shutdowns have happened before. And they have always ended when Congress found a compromise. But this time could be different: if a stalemate happens, Trump’s team is considering “impoundment”, not just around this bill but future budget plans.
That will spark legal and constitutional challenges. But Eric Teetsel, a Maga adviser, insists Trump will win. “We are living in a fairly unprecedented moment,” he told Bannon’s radio show this week. “The central holding of impoundment has never been before the Supreme Court and we think it will prevail.”
If so, there are three implications. One is that Trump will become even more autocratic, controlling America’s purse strings. The second is that there will be even more warfare between Maga populists, techno-libertarians and old-style constitution-loving Republicans. The third is that bond investors will need to rethink fiscal policy. For while they are used to parsing fiscal risks around congressional processes, they do not know how to price fiscal autocracy.
Perhaps investors will be pleasantly surprised. If Congress is rendered impotent, it is possible that an autocratic president might finally be able to produce a proper debt-reduction plan by fiat, after years of delay. That is what Trump’s team believes.
But a world of fiscal autocracy could also be dangerously capricious. With Trump, nothing can be ruled out. Either way, Treasury investors need to learn about “impoundment”. It may yet make the “Doge” dramas seem a mere distraction from the real political war.
gillian.tett@ft.com
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