Former Reagan Administration White House Budget Director David Stockman. who wrote a book titled “Trumped” predicting a Trump victory in 2016, said in a recent interview as reported by retired economist Charles Hayek (not to be confused with the world famous famous economist Frederich Hayek, the patron saint of Milton Friedman) responding to questions about Trump’s programs for spending money on military, etc.and assertions that under his amazing leadership the economy would soon really rebound,
“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. The debt now 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…
“I think what people are missing is this date, March 15th2017. 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.”
He also noted,
“The S&P 500 has been trading at 26 times earnings while earnings have been dropping for the past six or seven quarters. There is no booming recovery coming. There is going to be a recession and there will be no stimulus baton to bail it out. That is the new fact that neither Trump nor the Wall Street gamblers remotely understand.”
If that is an accurate assessment, then Trump’s plans are simply unattainable. His base seem to think that he can, by the strength of his claimed unique expertise, turn the U.S. economy around because he says he can and because so much of this country desperately needs him to pull it off. But if we hit that new debt ceiling quickly and become 20 trillion dollars in debt, all the while we, as we are currently, adding about a trillion dollars a year to that total, I don’t see any possible way that Trump can cut taxes, increase military spending, build a border wall, spend much more on veterans much less spend an extra trillion dollars on rebuilding our crumbling infrastructure. We already are technically bankrupt as a nation (more debt than we have revenue via production to cover). So it is possible that in a VERY short period of time, Trump (and the rest of the country) will get a very hard economic slap in the face.
Before you think of this as an anti-Trump rant, let me be clear: I don’t think it would have been any different under Clinton; the end date of that “debt ceiling holiday” was already set into law by Obama and she would simply have wanted to spend as much as Trump just on different programs. He will, of course, be blamed for it since it will happen on his ‘watch’ regardless of when it was set in motion. I don’t think he or Clinton could have stopped it without Draconian measures that would loose their respective basses as their pet causes were gutted. His ego and her conviction we can spend our way out of debt would have precluded either from tackling the problem appropriately.
And there is too much pain to go around for the weak willed and desperate-to-keep-their-cushy-jobs congress to even propose such austere measures as would be needed. And the people as a whole, in direct contradiction to JFK’s admonition, simply want to know how the government can better take care of themselves and relieve them of all consequences for their personal choices and behaviors.
So it will be interesting to see if Stockman’s prediction comes to pass as predicted and it is not like we will have to wait very long to test them. Unfortunately he did not also say what would be the outward effects on us all if he was right, just that Trump’s plans would be made unattainable. But their unattainability is due, in his view, to the government essentially running out of cash.
From a practical standpoint I’m not exactly sure what that means since we already know there is not enough currency in circulation to cover the debt already (the Federal Reserve says we have about $1.5 trillion in circulation).so where does the rest of the $18.5 Trillion come from to retire the debt were it called in? Can we continue forever addicted and euphotic from overdoses of what he calls “Hopium?” Much of the debt is intergovernmental to agencies such as Social Security and held in the form of Treasury Bonds. If that failed then they would have to shut down. THe current administration would, of course, be blamed for “shutting down the government” but the policies and situation that came to that was set in motion well before they had any say in it.
Over $6 Trillion of the debt is foreign held. Some pundits assert that China would never simply call in its $1.1 Trillion debt because it would basically kill the dollar on the world market which would hurt everyone including themselves. But if they had sufficiently divested themselves of dollar holdings to allow their own currency and gold to sustain them trough a rocky period, and the world reserve currency was now also held in Chinese currency, (which, thanks to the IMF it now is a part of their Special Drawing Rights currencies mix), and the result was to essentially destroy the U.S. economy and with it our ability to wage even a defensive war to stop their expansion into other areas (think about the economic ruin of the Soviet Union and its effect on them), I am personally not so sure of their benevolence on our behalf.
Whether anything happens on Match 15th or not, I think this could be a VERY interesting year… and, for us, not an altogether positive one. And it has nothing to do with Trump or Clinton as it has been set in place and grown over a long period of time. THe economic patron saint of liberals, Charles Maynard Keene, in a quote liberals ignore, wrote that the easiest way to destroy a country was to debauch the currency. We have done that with reckless abandon and I think we shall soon see whether or not he was right.