Fiscal Stimulus? How About a Fiscal Bloodbath Instead?
This interview by Greg Hunter with David Stockman gives an insider’s view on the huge disconnect between bullish stock market based on the anticipated Yuge fiscal infrastructure stimulus to be unleashed by Trump and the fiscal realities the country is heading into.
For those not too familiar with Stockman, he was the Budget Director of the Reagan administration in the ‘80s. Not only did he have a front row seat when it comes to fiscal matters, he was the orchestra conductor.
For those who have been around long enough to experience first hand – with battle scars to show for it – the bull runs and subsequent collapses during the dot com and the housing bubbles, the scenario currently unfolding should be obvious. For those who have not learned, rest assured the tuition fee for the next semester will not be trivial.
To set the context of the problems Reagan and Trump each faced coming to the White House, Stockman has this to say:
I think we are likely to have more of a fiscal bloodbath rather than fiscal stimulus. Unfortunately for Donald Trump, not only did the public vote the establishment out, they left on his doorstep the inheritance of 30 years of debt build-up and a fiscal policy that’s been really reckless in the extreme. People would like to think he’s the second coming of Ronald Reagan and we are going to have morning in America. Unfortunately, I don’t think it looks that promising because Trump is inheriting a mess that pales into insignificance what we had to deal with in January of 1981 when I joined the Reagan White House as Budget Director.
And on the likelihood of Trump’s Yuge stimulus getting through Congress.
I don’t think there is a snowball’s chance in the hot place that’s going to happen. This is delusional. This is the greatest suckers’ rally of all time. It is based on pure hopium and not any analysis at all as what it will take to push through a big tax cut. Donald Trump is in a trap. Today the debt is $20 trillion. It’s 106% of GDP. . . .Trump is inheriting a built-in deficit of $10 trillion over the next decade under current policies that are built in. Yet, he wants more defense spending, not less. He wants drastic sweeping tax cuts for corporations and individuals. He wants to spend more money on border security and law enforcement. He’s going to do more for the veterans. He wants this big trillion dollar infrastructure program. You put all that together and it’s madness. It doesn’t even begin to add up, and it won’t happen when you are struggling with the $10 trillion of debt that’s coming down the pike and the $20 trillion that’s already on the books.
Then Stockman drops this bomb:
I think what people are missing is this date, March 15th 2017. That’s the day that this debt ceiling holiday that Obama and Boehner put together right before the last election in October of 2015. That holiday expires. The debt ceiling will freeze in at $20 trillion. It will then be law. It will be a hard stop. The Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion a month rate. By summer, they will be out of cash. Then we will be in the mother of all debt ceiling crises. Everything will grind to a halt. I think we will have a government shutdown. There will not be Obama Care repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.
And when blind optimism meets reality:
When the market begins to understand that’s what’s coming down the pike and not this nirvana of the second coming of Ronald Reagan, I think the bullish optimism which is utterly unfounded at the moment will dissipate very quickly and then, here’s the second point, the Fed they are going to raise interest rates on March 15… so you are going to be in an environment in which there is no more stimulus coming from the money printers at the Fed and in which the vaunted Trump fiscal stimulus or the hand-off of the fiscal baton to the fiscal side will clearly not be happening… The casino will discover that it is home alone. Washington isn’t there for one more go-around of this fantasy. And then the rubber will meet the road and the day of reckoning will happen.