by David Stockman, David Stockman’s Contra Corner:
The Donald took to some bragging during yesterday’s annual tax filing moment—-assuring America’s oppressed taxpayers that happier times beckon. In fact, he insinuated that MAGA is not just a slogan. By his lights, apparently, we are already living the dream. To wit:
On this Tax Day, America is strong and roaring back. Paychecks are climbing. Tax rates are going down. Businesses are investing in our great country. And most important, the American people are winning.
So our purpose in this multi-part series is to beg to differ. Profoundly.
The Donald is not leading America to the promised land. Instead, he’s leading it to war abroad, fiscal and economic calamity at home and a crisis of governance that pales Watergate into insignificance.
To be sure, these baleful outcomes were baked into the cake when Trump took the oath 15 months ago, and there was never any rational reason to think he could reverse the tide.
As we have said from the beginning, the Donald’s historic role is to function as the Great Disrupter—tying the system in knots and causing the malefic Washington/Wall Street consensus to become irreparably fractured and thoroughly discredited.
But he can not possibly fix anything because he has no agenda, no mandate and no capacity whatsoever to lead.
His domestic program boils down to crude protectionism, nasty xenophobia and epic fiscal profligacy; his foreign policy is a function of who he talks to last among his worsening team of failed generals and bloody-minded neocons; and his notion of White House leadership consists, self-evidently, of early morning tweet-storms from the East Wing Residence.
The single thing that the mainstream media acknowledges as a “success” is the Christmas Eve tax cut, but that will soon prove to be the most counterproductive and irresponsible fiscal policy action in modern history–or even ever.
After all, the Donald inherited a real bad boy—a $700 billion deficit for the upcoming fiscal year (FY 2019). But the King of Debt was nonplussed, electing to pile on $300 billion of tax cuts ($285 billion revenue loss plus interest) for next year alone.
Shortly thereafter, of course, he kept the government lights on by signing the Horribus appropriations bill. So doing, he traded $63 billion of higher domestic spending and more than $100 billion of unfinanced disaster relief for $80 billion of added defense money.
In all, the Trumpite/GOP has pushed the coming year’s borrowing requirement toward $1.2 trillion. This means, in turn, that the bond pits will be flooded with $1.8 trillion of “homeless” treasury paper after accounting for $600 billion of the Fed’s QT bond-dumping program.
Here’s the thing. No one has ever tried—or even contemplated—financing $1.8 trillion or 8.8% of GDP at the tippy-top of a business cycle that will enter record territory (124 months) before FY 2019 is over.
Indeed, the very idea of it is pure madness and it will shatter the entire Bubble Finance order before it is done.
By way of historical comparison, the Federal deficit was $160 billion or 1.1% of GDP at the top of the last cycle (FY 2007) and the Fed was still buying the public debt, not dumping it.
In fact, it bought $15 billion of Treasury paper that year, meaning the net burden in the bond pits was $145 billion or 1.o% of GDP.
So what looms just ahead is a flood of government paper into the bond pits which will be 9X bigger (relative to GDP) than was the case at the last cycle peak on the eve of the financial crisis.
Besides, the Chinese were still buying Treasury paper hand-over-fist back then. By contrast, among the many wars the Donald has on his mind is the trade war with the Red Ponzi that has now gone into full tit-for-tat. This week has already generated a 179% Chinese levy on US sorghum and a pending US levy on steel automotive wheels, and apparently they are just getting warmed up.
On that score, we have no way of knowing whether the Donald’s dictator friend, Xi Jinping, will deliberately dump any of his $1.5 trillion hoard of US treasuries (when you count what is in nominee accounts in the Cayman Island, Belgium etc) as the next step of the trade war.