May 2025 Q&A

You asked, we answer

Thanks to everyone who submitted questions. We got way more than we could answer (shoot us an email if you asked one we didn’t answer and really want a reply).

A majority of the questions were, unsurprisingly, about tariffs. The first half of this post answers the non-tariff questions, and the second half answers the tariff ones.

Anirban’s Non-Tariff Answers

What if the USD loses its status as the world’s reserve currency? What currency, if any, could potentially take over that role?

No one currency is positioned to take over that role. The USD’s status as the reserve currency has been slipping for years, albeit gradually. That loss in market share has been absorbed across multiple currencies. We may be heading for a world in which there are multiple dominant currencies (USD, euro, renminbi, maybe even rupee) as opposed to one. It is also clear that more money at global banks is being held in gold.

What is your opinion on the effect of the currently protracted period of higher interest rates as it relates to U.S. Government debt and deficit as maturing debt at lower rates is refinanced at higher rates?

I continue to believe that America’s debt crisis is 5-10 years away. During the next decade, both the Social Security and Medicare trust funds become insolvent. America will be older. More people will be on fixed incomes. Fewer immigrants will be able to bolster the labor force. America’s birth rate is very low by our own historic standards. Layer on top of that higher interest rates on U.S. treasuries, and it’s pretty obvious that the current trajectory ends in crisis.

South-central PA continues to see a lot of warehouse construction. With potential product shortages in the near future, what are they thinking?!?

Every developer believes that their project is the end-all, be-all—regardless of the broader market outlook. But someone must be wrong. Once these projects are financed, they often move forward even as the economic fundamentals deteriorate.

As you can see, nationwide warehouse construction has fallen sharply since the 2023 peak. You can see what Zack had to say about the warehouse segment in a recent Construction Trend post.

Is anyone going to cut the fat and waste in the Maryland State budget before everyone has to move? I’ve lived here my whole life and I’m very scared about what the future holds.

It is apparent that Annapolis is clueless regarding how to grow an economy, expand a tax base, or manage a budget. We are likely about to lose our AAA bond rating. You are right: it is very sad. Many of us are thinking of moving. I’m not, because I love my house, but I’m aware that a Florida address would be financially advantageous.

Zack’s Non-Tariff Answers

Could legal gambling data provide a valuable signal about future economic activity?

I love this idea, but I’m not sure it’ll work. Here’s why:

1. We’re in this weird transition period where casinos—in areas that allow it—are open and operating but recently legalized mobile sports betting and table games are cannibalizing the in-person revenues (Marylanders, for instance, spend 3-4x more on sports betting than in-person gambling).

2. There’s compelling evidence that sports betting is extremely addictive. I doubt that it will be the thing that consumers cut back on when the economy weakens.

3. I suspect the typical gambler is not particularly indicative of the typical consumer.

Let’s glance at Maryland’s data, where you’d think DOGE layoffs and other economic uncertainty would crimp discretionary spending.

In-person casino revenues fell in April (down 0.3%), but there were pretty mixed results across locations. Live! Casino saw a big decrease, for instance, while Horseshoe Casino saw a large increase in revenues. On the other hand, sports wagering was up 9.6% year over year in March 2025 (most recent month available), an increase of about $52 million.

At best, I’d guess that gambling data is too noisy to provide a useful economic signal.

What are the mid- and long-term effects of DOGE-related funding cuts?

At least with what’s happened so far, there won’t be many mid to long term effects (at least at the macro level). The spending decreases ended up being a lot smaller than anticipated, and it’s going to be difficult to make any of them permanent; Republican legislators don’t appear particularly willing to try.

That’s not to say there aren’t short term effects, and DOGE is going to continue operating even as Elon Musk steps back. There are rumors that their efforts will shift toward cutting regulation and away from cutting headcounts and funding. That’s a more productive direction for efficiency improving measures, in my opinion, and certainly a better way to enact long-term change.

What are one or two unconventional indicators that are valuable early signals for future economic shifts relevant to our railway business?

Economic data has to be both frequent and high quality to be useful, and that description generally only applies to conventional indicators. So people talk about wacky measures like the men’s underwear index, but it’s just not really a thing.

Which is to say, I’m going to suggest pretty boring, mainstream indicators. I think rail volumes track pretty closely to industrial production, and that series has specific measures for different market groups. Retail spending data is also likely a helpful look into future demand for goods.

I would, at least for the time being, ignore anything related to sentiment. Consumer and business confidence readings have been largely unconnected to behavior and outcomes over the past few years.

How will current economic conditions affect philanthropic giving? Will this mirror the 2022 slowdown?

It’s difficult to say because the economic outlook is so uncertain, but a few thoughts:

1. The 2022 slowdown in giving is partly due to the massive increase in 2021, when large parts of the economy were still locked down but people were flush with cash from rising asset values and excess savings.

2. Even with a few consecutive annual decreases, inflation adjusted charitable giving increased a healthy 8% between 2019 and 2023.

3. If there’s a deep or prolonged recession, it would cause a sharp decrease in giving (like in 2008). I don’t think that’s particularly likely.

4. The share of Americans who donate to charity has fallen even as total donations have risen, and I think giving is heavily skewed toward the wealthy. Current economic threats are more likely to affect lower-income households, meaning that higher-income households will likely remain in a good position to give.

Anirban’s Tariff Answers