Playbook: What MAGA ‘civil war'?

Presented by
With help from Eli Okun, Bethany Irvine and Ali Bianco
On this morning's Playbook Podcast, Adam and Zack Stanton discuss whether Iran is dividing MAGA, how the specter of Iraq looms and the emergence of a new 2028 litmus test.
Good Friday morning. This is Adam Wren. How about those Indiana Pacers? Get in touch.
In today's Playbook …
— Is talk of a 'civil war' over Iran within the MAGA universe overblown?
— Ro Khanna tells Dasha Burns he's tired of Chuck Schumer's 'gobbledygook' answers about Iran and an authorization for use of military force.
— A federal appeals court unanimously ruled in favor of Donald Trump over Gavin Newsom in the California National Guard case.
DRIVING THE DAY
THE BIG QUESTION: What exactly is Trump going to do about Iran? That question, its potential answer and the implications that flow from it will ricochet around Washington today.
In Geneva: The foreign policy chiefs of the U.K., France, Germany and EU are meeting with their Iranian counterpart for nuclear talks with an eye toward an off-ramp on bombing Iran, as my POLITICO colleagues report from London. Among the attendees is U.K. Foreign Minister David Lammy, who yesterday had a 40-minute meeting with Secretary of State Marco Rubio and Middle East special envoy Steve Witkoff — and 'came out believing that Trump really does prefer a deal over military action,' POLITICO's Sam Blewett reports in this morning's London Playbook.
In Washington: The president will hold a national security meeting in the Oval Office at 11 a.m. That comes as Trump yesterday retreated to a familiar safe space as he weighs his choice: a 'two week' period during which he'll make a decision. If that timetable sounds familiar, there's a reason.
'Two weeks,' as NYT's Shawn McCreesh notes, is a long-running 'slippery thing' and 'not a measurement of time so much as a placeholder' for Trump. 'Tax plans, health care policies, evidence of conspiracy theories he claimed were true, the fight against ISIS, the opening of some coal mines, infrastructure plans — all were at one point or another riddles he promised to solve for the public in about two weeks,' he writes. ('With President Trump, two weeks sometimes can be kind of nebulous,' Steve Bannon told Playbook late last night.)
Instead of playing the will-he-or-won't-he game, let's dive into the politics at play. Whatever path Trump chooses vis-à-vis Iran will unfurl a reality that could shape American politics for years to come.
IS THE MAGA 'CIVIL WAR' ON IRAN REAL? Since Iran emerged as a central issue in Washington, there has been copious chatter about a 'civil war' within the MAGA movement over potential U.S. involvement in Iran. And for good reason: Opposing foreign intervention was one of the central planks of Trump's campaign platform and played a huge part in his rise to power. Attacking Iran could risk shattering Trump's MAGA coalition and alienating the true believers.
It's worth asking whether that's more the stuff of a Resistance fever dream, though. Based on a number of conversations we've had with MAGA leaders, there are few signs anyone has the appetite or interest in seriously taking on the president over this.
Not Steve Bannon: The 'War Room' host and keeper of the 'America First' flame had lunch with Trump yesterday. Though he declined to discuss his meal with the president, Bannon told Playbook last night that 'the MAGA movement tonight is in a great place.'
Trump 'clearly stated' that he wants 'to look at other alternatives,' Bannon told Playbook. 'This is a guy, before he turns to violence in terms of military kinetic action, he looks at every other alternative you can do. I think it just once again reinforces the reason that the MAGA movement loves him.' (Bannon puts the onus on Israeli PM Benjamin Netanyahu, saying 'Netanyahu's government needs to finish what it started.')
Not Charlie Kirk: There is perhaps no greater proof point of a ratcheting down of MAGA consternation on Iran engagement than Kirk, the founder of Turning Point USA. Kirk posted to X earlier this week that 'No issue currently divides the right as much as foreign policy,' and added that a schism on Iran could 'disrupt our momentum and our insanely successful Presidency.'
But when Playbook spoke with him yesterday, he was singing from a different hymnal. 'It's not a civil war,' Kirk told us. 'I think that there is robust and healthy disagreement and discussion.'
What explains it? Ryan Girdusky, a Republican political consultant with ties to VP JD Vance, put it to Playbook succinctly: 'No one gives a fuck about a few bombs so long as we don't send in ground troops.'
Another factor, of course: For the last decade, Trump — rather than any specific policy issue — has been a sort of one-man dividing line defining the sides in American politics: For or against? It's hard to see that changing, especially in an era of negative partisanship.
ON THE HILL: Left unsaid in White House press secretary Karoline Leavitt's briefing yesterday: Whether Trump would seek authority from Congress for any military action in Iran. If he does, he seems to have a partner in one of his own party's biggest advocates for Congress wresting back war powers from the president: Sen. Todd Young (R-Ind.).
What's surprising about this: Young is no reflexive MAGA booster and did not endorse Trump's 2024 campaign. For years, he has teamed up with Sen. Tim Kaine (D-Va.) to reassert Congress' role in authorizing military force.
With Iran driving the news, Kaine is again demanding a new vote on authorization for the use of military force.
But now, Young sounds unlikely to join his longtime Hill ally on the issue — at least with the same vociferousness as in the past. A spokesperson for Young tells Playbook that the senator 'plans to review the text [of Kaine's proposal], and will be following events closely leading up to any votes.' Earlier in the week, Young, who has long argued for a tougher stance on Iran, said on X he would 'work with the Administration should any congressional authorization be necessary to protect the American people and advance our core national security interests.'
But the issue is dividing Democrats: At least one prominent Hill Dem is not impressed with Senate Minority Leader Chuck Schumer's leadership on Iran. In a clip just posted on YouTube, Rep. Ro Khanna (D-Calif.) tells Playbook's Dasha Burns he's disappointed by Schumer's answer on whether he'll help push for a vote on Kaine's AUMF resolution.
'He could have said, 'No, I'm not, because I want Trump to attack Iran.' Or he could have just said, 'Yes, I am' — which is where I think the Democratic Party should be,' said Khanna. 'Instead, he gave this gobbledygook answer, which no one other than Washington Beltway consultants understand. Part of my problem is he didn't take a clear stand. That's exactly what people hate about the Democratic Party.' The full episode posts on Sunday morning. Subscribe to 'The Conversation with Dasha Burns'
For your planning: Schumer has privately confirmed there will be an all-senators classified briefing on Iran early next week, an aide for the minority leader told POLITICO'S Inside Congress this morning.
WHERE THERE *IS* SOME TREPIDATION: It's within Trump's own Cabinet, where some of the most significant opposition to an Iran strike lies. In March, DNI Tulsi Gabbard testified before Congress that Iran is not building a nuclear weapon, and she has suggested Washington political elite are 'carelessly fomenting fear and tensions between nuclear powers.' (Trump dismissed her testimony earlier this week with a curt, 'I don't care what she said.')
What's going on here? Gabbard's views on foreign interventionism were hugely shaped by having deployed to Iraq as a member of the Army National Guard from 2004–2005, which she has cited as a turning point for her on any number of issues.
On a different place on the spectrum is another Iraq veteran: Vance, whose social media diplomacy has at least somewhat quieted MAGA's sturm und drang on another foreign entanglement.
One theory from MAGA world: Laura Loomer, the influential far-right activist who met with Vance at the White House complex earlier this month, suggested to Playbook that Gabbard is 'posturing to undermine JD Vance' to serve her own 'presidential and electoral interests come 2028.' (In an interview with Megyn Kelly last month, Gabbard herself said of a 2028 bid that she 'will never rule out any opportunity to serve my country.')
Presented with Loomer's quotes, a Gabbard spokesperson did not comment to Playbook but sent along positive X posts from Loomer last year about a Gabbard-Trump 'unity ticket.'
Loomer has since soured on Gabbard, though she stopped short of calling for her resignation as DNI. 'This is the problem with coalition-building,' Loomer told Playbook. 'The Democrats who were awarded Cabinet positions in the Trump administration essentially participated in an extortion campaign to make a deal with the president.'
Bannon, at least in our chat, was less pessimistic about the state of the MAGA coalition. 'Sunday was the 10th anniversary of [Trump] coming down the golden escalator,' he said. 'We've been through trials and tragedies. We've been through victories and defeats. We've been through great days and horrible days. The one thing our movement has is resilience.'
ON THE HILL
RECONCILABLE DIFFERENCES: Democrats are meeting with the Senate parliamentarian today, ahead of the crucially important Finance Committee's Byrd bath arguments on the reconciliation bill, which kick off Sunday, Punchbowl's Laura Weiss and Andrew Desiderio report. This process will decide what's fair game in the GOP's megabill — and Democrats are gearing up for a fight on roughly 60 tax and health provisions. Both Democratic and Republican aides are meeting with the parliamentarian beforehand.
Odd man out: Sen. Rand Paul (R-Ky.), chair of the Homeland Security and Governmental Affairs Committee, should technically be leading border security spending negotiations on the megabill — but it's really Senate Budget Chair Lindsey Graham (R-S.C.) running the show, POLITICO's Hailey Fuchs reports this morning. Some minor shade from Graham: 'Senator Paul usually votes 'no' and blames everybody else … [His] reducing the amount [for border security] didn't withstand scrutiny … The analysis was shallow.'
Also on the outs: the SALT caucus, with Sen. Markwayne Mullin (R-Okla.) calling up Reps. Mike Lawler (R-N.Y.), Young Kim (R-Calif.) and Andrew Garbarino (R-N.Y.) on Wednesday to get a compromise, Weiss and Desiderio report. Mullin proposed keeping the House's coveted $40,000 cap but lowering the income threshold — but they're still not close to a deal, the Washington Examiner's Rachel Schilke writes.
The fallout: The megabill's 'no tax on tips' provision isn't popular with parts of the restaurant industry, AP's Dee-Ann Durbin writes. The proposal doesn't address low pay for workers who don't get tips, like dishwashers and cooks, and the Independent Restaurant Coalition is asking Congress to reconsider.
Sounding the alarm: The 'Little Lobbyists,' about two dozen children with disabilities and their families, warned members of Congress this week that the proposed cuts to Medicaid would be 'devastating,' NYT's Megan Mineiro and Margot Sanger-Katz report.
Losing credit: Three-quarters of electricity generation projects that benefit from Biden-era clean energy tax credits are in GOP districts, but the megabill would functionally ax them, POLITICO's Kelsey Tamborrino and Jessie Blaeser report. Democrats and clean energy advocates have been ramping up pressure to save the projects ahead of next week's potential vote, as Senate Majority Leader John Thune said yesterday the language is 'not totally settled yet,' WSJ's Lindsay Wise and Jennifer Hiller report.
SWORD OF DAMOCLES: Looming in the background is OMB Director Russ Vought, who's threatening to trigger a rare (and wonky) pocket rescission to codify DOGE's spending cuts. It's not playing well with some Republicans, POLITICO's Jennifer Scholtes reports this morning. 'Pocket rescissions are illegal, in my judgment,' Senate Appropriations Chair Susan Collins (R-Maine) said, 'and contradict the will of Congress.' But but but: 'Talking is one thing. We'll see if he actually does it,' said Rep. Ken Calvert (R-Calif.).
ALSO COMING NEXT WEEK: Rep. Robert Garcia (D-Calif.) is a growing favorite to win the caucus vote for House Oversight ranking member, but he's backed away from calling it 'generational change,' POLITICO's Nick Wu and Hailey Fuchs write. He's met with almost all the sitting House Dems and is branding himself 'less as an anti-Trump attack dog and more as a consensus-builder.'
BEST OF THE REST
BREAKING LATE LAST NIGHT: A federal appeals court officially allowed Trump to retain control of the National Guard in California, against the challenge from Gov. Gavin Newsom, the AP reports. It was a unanimous ruling for Trump from a panel that included Republican and Democratic appointees. But they did reject the administration's contention that even a National Guard federalization that was 'obviously absurd or made in bad faith' couldn't be overturned by the courts. Newsom vowed to 'press forward with our challenge' to Trump's deployment of the military.
L.A. confidential: The city isn't finished with its turn in the national spotlight as the epicenter of the immigration debate: Vance could make a trip to Los Angeles this week, NBC's Jacob Soboroff scooped. Plans are in the works, though not final yet. … Separately, the LA Dodgers said yesterday that they'd blocked federal agents from entering their storied stadium, but DHS contested their version of events, the LA Times' Terry Castleman and Jack Harris report.
Immigration files: A federal judge issued an injunction barring the Transportation Department from conditioning infrastructure funding to blue states on cooperation with immigration enforcement, per Reuters. … After the whiplash-inducing Trump pivots on whether to conduct ICE raids at agricultural and hospitality workplaces, border czar Tom Homan pledged they will continue, per Axios. But the raids have sent a chill through key industries, where many migrants aren't showing up to work, Bloomberg's Alicia Caldwell and colleagues report. Businesses have been left befuddled by the back and forth, AP's Paul Wiseman reports.
How it's playing: Focus groups with swing-state Latino Trump voters show most of them still support the president, though there are some mixed opinions about mass deportations, NBC's Bridget Bowman and Ben Kamisar report.
POLITICAL VIOLENCE WATCH: Rep. Max Miller (R-Ohio) said he'd been run off the road by a man who had issued death threats to him and waved a Palestinian flag. 'We know who you are, young man, and the police are going to be paying you a visit,' Miller warned in a video on X, decrying the 'blatant antisemitic violence.' More from The Hill … Meanwhile in NYC, police said a man had left a voicemail suggesting that he'd blow up Democratic mayoral candidate Zohran Mamdani's car (though he doesn't actually own one), per the N.Y. Daily News. The NYPD has launched a hate crimes investigation.
The long tail of violence: Former Rep. Rodney Davis (R-Ill.), who survived the congressional baseball shooting, tells POLITICO's Ben Jacobs that he still carries a gun for safety eight years later. Meanwhile, WaPo's Paul Kane notes that the House doesn't have a plan for what happens if violence tips the balance of power — as it has in Minnesota.
BLEEDING CUTS: As Trump proposes slashing the President's Malaria Initiative budget in half, a new study projects that fully funding it would stop close to 14 million malaria cases and save more than 100,000 lives, FT's Michael Peel reports. Domestically, NYT's Kate Morgan reports that black lung is making a comeback among younger coal miners — and many federal scientists who were trying to solve the health crisis have now been fired.
PAGING VOLODYMYR ZELENSKYY: 'Washington has had it with Andriy Yermak,' by POLITICO's Amy Mackinnon and Jamie Dettmer: It's a 'rare point of bipartisan consensus … The second most powerful man in Ukraine, Yermak has been a particularly frustrating interlocutor for the Trump administration … [M]any in Washington have found Yermak to be uninformed about U.S. politics, abrasive and overly demanding with U.S. officials.' Yermak responded in a statement that he's doing all he can to save his country: 'If that means being considered 'challenging' by others — so be it.'
SCOTUS FALLOUT: After the Supreme Court upheld Tennessee's ban on gender transition-related medical care for minors, NYT Magazine's Nicholas Confessore has a sprawling read on recriminations within the transgender rights movement. Some LGBTQ+ advocates long thought this was a losing case and questioned the strategy of bringing it to the high court — 'a tragic gamble' that perhaps 'set their movement back a generation.' The plaintiffs argue that Republican scapegoating of trans people is really to blame. Still, advocates think the ruling left them some legal room to maneuver, Reuters' Andrew Chung reports.
THE WEEKEND AHEAD
TV TONIGHT — PBS' 'Washington Week': Jonathan Karl, David Ignatius, David Sanger and Nancy Youssef.
SUNDAY SO FAR …
POLITICO 'The Conversation with Dasha Burns': Rep. Ro Khanna (D-Calif.).
FOX 'Fox News Sunday': Sen. Mike Lee (R-Utah) … Sen. Tim Kaine (D-Va.). Supreme Court panel: Tom Dupree and Jonathan Turley. Panel: Matt Gorman, Stef Kight, Roger Zakheim and Juan Williams.
CBS 'Face the Nation': Sen. Tim Kaine (D-Va.) … Reps. Ro Khanna (D-Calif.) and Thomas Massie (R-Ky.) … Israeli Ambassador Yechiel Leiter … retired Gen. Frank McKenzie.
NBC 'Meet the Press': Sen. Lindsey Graham (R-S.C.) … Sen. Mark Kelly (D-Ariz.). Panel: Lanhee Chen, Ashley Etienne, Jonathan Martin and Andrea Mitchell.
ABC 'This Week': Sen. Tom Cotton (R-Ark.) … Steve Ganyard … Karim Sadjadpour … Chris Christie.
CNN 'State of Union': Sen. Adam Schiff (D-Calif.). Panel: Michigan Secretary of State Jocelyn Benson, Kristen Soltis Anderson, Xochitl Hinojosa and Scott Jennings.
NewsNation 'The Hill Sunday': Sen. Mike Rounds (R-S.D.) … Rep. Sean Casten (D-Ill.). Panel: Ian Swanson, James Hohmann, Molly Ball and Jasmine Wright.
TALK OF THE TOWN
Christopher Tattersall, an arborist who helped erect the two new White House flagpoles, found himself standing by the president as Donald Trump told reporters about a potential strike on Iran. A similar thing happened to players from the Italian soccer club Juventus.
Timothy Weah, a U.S. soccer player in the room with Trump, said the experience was 'a bit weird' because 'I just want to play football, man.' But Tattersall said it was 'pretty cool.'
Mark Cuban confirmed that Kamala Harris' campaign requested he submit VP vetting papers. He said he declined, because it would take too long and he wouldn't have been 'very good as the No. 2 person.'
PLAYBOOK METRO SECTION: 'On Juneteenth, a march in D.C. that retraces the steps to freedom,' by WaPo's Ellie Silverman and Afia Barrie: 'It's been four years since Juneteenth was designated a federal holiday … But people marching in the nation's capital Thursday said they felt like the country was moving backward … People came alone, alongside friends or with their children to celebrate the same history they feel the administration is trying to erase.'
— Miss Pixie's, the iconic vintage and antiques store in Adams Morgan, is closing its doors later this year. Antique lovers everywhere, we feel your pain.
MEDIA MOVES — The Atlantic is adding Quinta Jurecic, Toluse Olorunnipa and Nancy Youssef as staff writers. Jurecic previously has been a contributing writer for The Atlantic and senior editor at Lawfare. Olorunnipa previously was a national political reporter at WaPo. Youssef previously was a national security correspondent at the WSJ.
TRANSITION — Shefali Razdan Duggal is now a member of the Council on Foreign Relations and a speaker for Creative Artists Agency. She recently retired as U.S. ambassador to the Netherlands.
WELCOME TO THE WORLD — Louis Nelson, an editor at POLITICO, and Becky Nelson, a managing director at FGS Global, welcomed Elizabeth Reeves Nelson this week. Lizzie joins big sister Juliet, who is delighted to have a baby sister, and older brother Jimmy, who is warming up to the idea.
— Nicole (Ginis) Del Beccaro, a producer at Newsmax, and Thomas G. Del Beccaro, an author, historian and political commentator, welcomed Thomas Lucca Del Beccaro on Monday. He came in at 8 lbs, 12 oz and 19 1/2 inches. Pic
HAPPY BIRTHDAY: Pennsylvania Gov. Josh Shapiro … Sen. Eric Schmitt (R-Mo.) (5-0) … Reps. Don Beyer (D-Va.), Deborah Ross (D-N.C.) and Ralph Norman (R-S.C.) … Adrienne Elrod … POLITICO's Josh Gerstein and Mackenzie Wilkes … Ian Prior … CNN's Janie Boschma … Jeremy Wiggins … Brandon Arnold of the National Taxpayers Union … Tom Zigo of the MPA … Brad Howard of Corcoran Street Group … Ryan Walker of Heritage Action … Kristin White … Leon Rodriguez of Seyfarth Shaw … Ginger Loper … former Rep. Phil English (R-Pa.) … Gisselle Reynolds of Rep. Mario Diaz-Balart's (R-Fla.) office … Sara Pearl Kenigsberg … Emma Tenery of Speaker Mike Johnson's office … Chris Grieco … Susan O'Neill … Kai Bernier-Chen of Trident GMG
Send Playbookers tips to playbook@politico.com or text us on Signal here. Playbook couldn't happen without our editor Zack Stanton, deputy editor Garrett Ross and Playbook Podcast producer Callan Tansill-Suddath.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

The Hill

19 minutes ago

• The Hill

Israel, Iran trade strikes as Trump weighs US military involvement

Israel and Iran traded strikes on Friday as President Trump weighs the possibility of U.S. involvement and European officials seek to revive nuclear negotiations with Tehran. Israel said it hit 60 Iranian aircrafts early Friday morning along with the headquarters of the Organization of Defensive Innovation and Research, which carries out nuclear weapons research, according to the Associated Press. Iranian media said Israel's strikes also hit the city of Rasht on the Caspian Sea early Friday. Reuters reported that at least one Iranian missile struck Beersheba, Israel's largest southern city, early Friday, ripping off the facade of at least one apartment complex and leaving a crater in a residential area. CNN reported it struck close to a tech park that houses a Microsoft office. Iran also struck near civilian sites in Haifa, injuring more than a dozen people and sending residents running for cover in a shopping mall, CNN reported. That followed an Iranian strike on Thursday that struck a hospital in Beersheba, wounding at least 80 patients and medical workers, according to Israeli officials. Israel's defense chief accused Iran of war crimes and said Supreme Leader Ayatollah Ali Khamenei would be held accountable for the attack. The Israel Defense Forces (IDF) launched overnight bombings in the heart of Tehran, along with the cities of Tabriz and Kermanshah, hitting 'missile storage and launch infrastructure components,' according to the AP. 'We are strengthening our air control in the region and advancing our air offensive,' Israeli military spokesperson Brig. Gen. Effie Defrin told reporters, according to the AP. 'We have more sites to strike in Tehran, western Iran and other places.' Secretary of State Marco Rubio and Steve Witkoff, Trump's special envoy to the Middle East, met with Britain's foreign secretary on Thursday to discuss diplomatic efforts to end the conflict. Iran's Foreign Minister Abbas Araghchi is slated to meet with European leaders in Geneva to discuss a new nuclear deal. Iran earlier this month rejected U.S. proposals to effectively end its nuclear program, and move enrichment facilities outside the country. The White House on Thursday released a statement from President Trump saying he would decide within two weeks on whether to join Israel's war. Israel is pressuring the U.S. to deploy it's 'bunker buster' bombs on Iran's Fordo uranium enrichment facility, which is key to its nuclear program and buried deep inside a mountain. While Trump has been publicly non-committal on resuming talks with Tehran, Araghci said Thursday the U.S. is pushing for diplomacy behind the scenes. 'It is the Americans who want talks,' he said, according to AP. 'They've sent messages several times — very serious ones — but we made it explicitly clear to them that as long as this aggression and invasion continue, there is absolutely no room for talk or diplomacy. We are engaged in legitimate self-defense, and this defense will not stop under any circumstances.' Earlier this week, Trump urged civilians to evacuate Tehran immediately, as the U.S. ordered a third U.S. Navy destroyer to the eastern portion of the Mediterranean Sea. Prime Minister Benjamin Netanyahu, speaking near the damaged Beersheba hospital, said he trusted that Trump would 'do what's best for America.' 'I can tell you that they're already helping a lot,' he added.

Yahoo

22 minutes ago

• Yahoo

An inflation surge could swamp Trump's presidency. This one investment will keep your money safe.

America's financial outlook has darkened under President Donald Trump's leadership. All three major credit-rating agencies now rank U.S. federal debt one notch below triple-A, and Jamie Dimon, the chairman and CEO of JPMorgan Chase JPM, has warned of a crack in the U.S. bond market. With the 10-year U.S. Treasury yield BX:TMUBMUSD10Y at 4.4% on Wednesday and the 30-year rate BX:TMUBMUSD30Y at 4.9%, holders of nominal U.S. debt should be prepared for significant real losses. The principal risk is not U.S. sovereign default, but rather unexpected increases in medium- and long-term interest rates, owing to market expectations of higher inflation. Fiscal policy under Trump is unsustainable, as it was under former President Joe Biden — but even more so if the Trump administration's 'big, beautiful' budget passes in anything like its current form. 'I'm at my wit's end': My niece paid off her husband's credit card but fell behind on her taxes. How can I help her? Why the biggest-ever 'triple witching' options expiration could deliver a jolt to Friday's trading Israel-Iran clash delivers a fresh shock to investors. History suggests this is the move to make. 'I prepaid our mom's rent for a year': My sister is a millionaire and never helps our mother. How do I cut her out of her will? I'm 75 and have a reverse mortgage. Should I pay it off with my $200K savings — and live off Social Security instead? The January 2025 Financial Report of the United States Government makes this clear. The U.S. ratio of federal debt held by the public to GDP at the end of the 2024 fiscal year was around 98%, although $4.7 trillion of the $28.3 trillion in federal debt was held by the Federal Reserve — meaning it is erroneously categorized as held by the 'public,' when really the central bank's accounts should be consolidated with those of the federal government. Under current policy and based on the report's assumptions, federal debt held by the public would reach 535% of GDP by 2099. Stabilizing the U.S. debt-to-GDP ratio requires that the annual primary federal deficit (excluding interest payments) fall by an average of 4.3% of GDP over the next 75 years. And yet, the federal deficit and primary deficit were 6.4% and 3.3% of GDP, respectively, in fiscal-year 2024 — far above what can be justified with the economy near full employment. Read: America's debt is at a breaking point — Trump's tax bill might just push it over the edge With the U.S. Congress so dysfunctional, no one has any faith that it will deliver the required deficit reduction. Democrats do not do permanent spending cuts, and Republicans do not do permanent tax increases. The federal government does own about 28% of U.S. land (roughly 640 million acres), as well as other real commercial assets that could yield significant additional nontax revenues if properly managed. But neither party — nor even the misnamed Department of Government Efficiency — appears to have considered this option, so the federal deficit as a share of GDP is likely to rise over the next few years. With no foreseeable improvement in fiscal policy, there are two possible outcomes. First, the U.S. government could default. There has long been a small, but recurrent, risk of a technical, short-lived default if Congress fails to raise, suspend, extend, revise or abolish the federal debt ceiling on time. Fortunately, it has averted this scenario 78 times since 1960, and we expect it to continue doing so. As matters stand, the debt ceiling (including debt held by federal agencies) is set at $36.1 trillion, and debt subject to the limit is also $36.1 trillion. If needed, the Treasury has a highly liquid asset (the Treasury General Account held with the Fed) worth $332.9 billion that it can use to meet its obligations, and it may temporarily use 'extraordinary measures to continue to borrow additional amounts for a limited time.' The second, more likely possibility is that the Fed will monetize enough federal debt to prevent default. Since U.S. federal debt is serviced in dollars, 'printing money' is always an option. But, as the Fed well knows, a large-scale monetization of federal debt would result in significantly above-target inflation. We believe the Fed will do this without its operational independence being revoked by Trump. To get the Federal Open Market Committee to do something it does not want to do, the president would need to control the majority of its 12 voting members. These include the seven members of the Federal Reserve Board of Governors and five (out of 12) regional Federal Reserve Bank presidents who vote at any given FOMC meeting. Neither the president nor Congress can appoint or fire Federal Reserve Bank presidents. The Board of Governors must approve them, and only the board can remove them. The president nominates board members, but the Senate must confirm them. Board members' current term limits imply that, assuming none are fired, Trump will have the opportunity to nominate only two new members. True, with the power to fire board members 'for cause' — meaning 'inefficiency, neglect of duty, or malfeasance' — Trump could try to replace a majority of the members with loyalists. But this seems unlikely. Whether the 'for cause' criterion has been met will be contested in the courts, and the Senate would have to confirm Trump's appointees. Read: Trump's pick to replace Fed Chair Powell could rock your mortgage and retirement. Buckle up. Similarly, Congress could revise the Federal Reserve Act to replace the Fed's monetary-policy objectives with a mandate to buy or sell sovereign debt according to the wishes of the Treasury. But this, too, is unlikely. And the same goes for a scenario in which the Treasury sets a rapidly depreciating exchange-rate target for the dollar DXY that can be achieved only through large-scale Fed purchases of U.S. public debt that generate high inflation. However, fiscal dominance — indeed, fiscal capture — is very likely, because the need to avoid a domestic and global financial crisis will force the FOMC's hand. It will do whatever is necessary to prevent a U.S. government default, because the Fed's financial-stability mandate (the Financial Stability Act of 2010 mentions the Fed 179 times) undoubtedly trumps its monetary-policy mandate of maintaining maximum employment, stable prices and moderate long-term interest rates. The Fed cannot credibly threaten to refuse to monetize debt and deficits to compel fiscal retrenchment by the Treasury, let alone Congress. Thus, the Fed will have no choice but to engage in sovereign-debt purchases that it knows to be incompatible with its monetary-policy objectives. With nominal interest rates for medium- and long-term U.S. sovereign debt far below the levels consistent with realistic expectations of future inflation, serious capital losses on nominal debt instruments (public and private) are likely. The inflation surge could be no more than three years away. As the prospect of fiscal capture comes into view, investing in Treasury inflation-protected securities (TIPS) and other indexed public and private debt instruments will become increasingly attractive. Willem H. Buiter, a former chief economist at Citibank and former member of the Monetary Policy Committee of the Bank of England, is an independent economic adviser. Anne C. Sibert is professor emerita of economics at Birkbeck, University of London. This commentary — 'U.S. Debt Holders Should Brace for Impact' — is published with the permission of Project Syndicate. Read: 'You are going to panic,' Jamie Dimon tells regulators about what will happen when the bond market cracks More: What's at stake if world's most powerful market finally buckles after decades-long U.S. debt splurge 20 companies in the S&P 500 whose investors have gained the greatest rewards from stock buybacks Israel-Iran conflict poses three challenges for stocks that could slam market by up to 20%, warns RBC I'm 51, earn $129K and have $165K in my 401(k). Can I afford to retire when my husband, 59, draws Social Security at 62? 'It might be another Apple or Microsoft': My wife invested $100K in one stock and it exploded 1,500%. Do we sell? Why the stock market will be performing a high-wire act over the summer, according to UBS

Yahoo

22 minutes ago

• Yahoo

Wall Street reports 65% chance that U.S. will intervene in Iran—Goldman Sachs says OPEC will be key buffer in oil volatility

Rising tensions between the U.S., Iran, and Israel have fueled speculation about possible U.S. military intervention, with Wall Street reporting a 65% chance of action against Iran by July, leading to increased oil price volatility and shipping costs, especially around the critical Strait of Hormuz. However, OPEC+'s substantial spare capacity is seen as a key buffer against major supply disruptions, while the surge in oil prices has also strengthened the U.S. dollar amid global uncertainty. Questions are continuing to mount about how far tensions in the Middle East will spiral, with President Trump refusing to rule out U.S. intervention between Israel and Iran. Indeed, the rhetoric out of the White House is stoking theories that America may take military action in the Middle East, with Goldman Sachs now placing the probability as more likely than not. Overnight White House Press Secretary Karoline Leavitt suggested the Oval Office will take a view in the coming fortnight, relaying to reporters a direct message from the president: 'Based on the fact that there's a substantial chance of negotiations that may or may not take place with Iran in the near future, I will make my decision whether or not to go within the next two weeks.' President Trump has kept spectators largely in the dark about his intentions, saying Wednesday 'I may do it … I may not. I mean, nobody knows what I'm going to do.' In a note Wednesday—published by Goldman ahead of Leavitt's announcement yesterday—commodities researchers Daan Struyven, Ephraim Sutherland and Yulia Zhestkova Grigsby wrote there is a 65% of U.S. military action against Iran by July, citing a Polymarket survey. That being said, the analysts left the chances of a U.S.-Iran deal this year at 50%. As a result, the trio write 'the term structure of implied volatility, and call skew suggest that oil markets believe that much higher prices are likely in the next few months, but see limited changes to the long term outlook.' The note seen by Fortune adds: 'Our global indices of oil shipping rates have increased over the past week as increased risks have lifted rates for Middle Eastern routes.' Per Goldman's research, the rate in U.S. dollars per barrel increased in the recent-term from $4.5 to $5.5 for clean stock and approximately $2.8 to $3.1 for dirty. The projected volatility in Middle Eastern shipping costs comes down to the Strait of Hormuz, located on the southern border of Iran. The oil flow through the strait accounts for about 20% of global petroleum liquids consumption, writes the U.S. Energy Information Administration. Iran has—in the past—threatened to close the strait in a bid to curb Western intervention into its affairs, with reports already emerging about shipping companies avoiding the waters. This, in turn, has ramifications for costs given the lag in delivery times and the use of less efficient routes. Trump's threatened intervention into Iran has gone as far as saying he knows where the nation's supreme leader, Ayatollah Ali Khamenei, is hiding. Trump posted on Truth Social on Tuesday: 'He is an easy target, but is safe there. We are not going to take him out (kill!), at least not for now.' However the conflict plays out, strategists at Macquarie expect oil prices to continue to shift over the coming weeks, writing in a note earlier this week seen by Fortune: 'We expect oil prices to remain volatile with an upward trend for the next few weeks as both Iran and Israel maintain their military intensity. 'Regardless of military or diplomatic progress, we expect Brent to rally towards the low $80 level before hitting a plateau as the perceived risk of actual oil supply disruption becomes largely discounted.' Goldman also said OPEC+ could provide a much-needed buffer amid the volatility, undoing some of the cuts it has announced previously. Reports have already surfaced that OPEC+ is considering a large production increase, with members considering potentially increasing output of 411,000 barrels a day (bpd) in July. 'While the exact magnitude is uncertain, we believe that above-average global spare capacity (worth around 4-5% of global demand) is the key buffer to Iran-only disruptions via larger-than-otherwise unwinds of OPEC+ production cuts,' added the Goldman analysts. Already the volatility has lit a fire under the U.S. dollar, which has been caught in a tug-of-war between better-than-expected inflation expectations and a flee to safety amid rising geopolitical tensions. As Antonio Ruggiero, senior FX and macro strategist at Convera wrote in a note to Fortune yesterday: 'Behind the façade of safe-haven appeal lies the true driver of the dollar's rebound: rising oil prices, now hovering near a five-month high. 'Since most global oil trades are settled in U.S. dollars, surging crude demand tends to drive additional demand for USD. This rebound in sentiment is also reflected in the options market, where—for the first time since April—traders have backed off from bearish dollar positions.' This story was originally featured on