Dear Reader,
“The MAGA folks are going to be in for a rude awakening.”
This is the measured conclusion of Mr. David Stockman. In the early 1980s this fellow directed Gipper Ronnie Reagan’s Office of Management and Budget.
Well does this hard-boiled egg know Washington.
He knows its fever swamps… and the cold-blooded belly-crawlers who infest them.
He has their complete and total measure.
Why is Mr. Stockman convinced MAGA folks are in for a dispolite awakening?
Why is he pouring ice water upon their pending parade?
- Donald Trump has been taking to the public stage in recent weeks promising a new “golden age” of American prosperity upon his return to the Oval Office, but nearly the opposite is just around the corner.
- What’s actually coming down the pike is the UniParty’s revenge — a financial and economic s***show that is likely to dwarf all that has gone before.
Kind heaven, no. Can it be?
Washington’s Fiscal Doomsday Machine
Yet you have seized my attention, Mr. Stockman — my ears are up. Please elaborate:
- There is no mystery as to why… There is a demolition derby brewing in the bond pits that threatens to extinguish any even faint remaining hope that Washington’s Fiscal Doomsday Machine might be unplugged.
Washington’s Fiscal Doomsday Machine?
- We are referring to the utter fiscal paralysis that stems from the combination of the GOP’s addiction to tax cuts and Big Defense budgets and the Dem’s demagoguery about Social Security, Medicare and the rest of the Welfare State. This means that down on the banks of the Potomac there is virtually no one left in the camp of fiscal rectitude.
I must agree — Washington’s Fiscal Doomsday Machine is a bipartisan mechanism.
Each party works its own set of pulleys, levers and cranks. Each enters its own inputs.
Thus one segment of Washington’s Fiscal Doomsday Machine outputs guns.
The other segment, running to different settings, outputs butter.
A bizarre contraption indeed!
Anti-Productive Production
Yet I hesitate to sketch such stark distinctions between the two parties.
The butter-makers are hot to make guns aplenty… so long as they ship to Ukraine… so long as they shoot Russians.
And the gun-makers consent to vast enterprises in butter-making. They may yell against it. They may moan about it.
Yet they consent to it.
Thus Washington’s Fiscal Doomsday Machine is a vastly productive, anti-productive device.
Anti-productive?
Anti-productive because dollars are its fuel — dollars that might otherwise serve productive purpose in the private economy.
They are instead diverted into the bottomless tanks of this anti-productive behemoth.
Hence its anti-production. But to proceed…
“The Demolition Derby Brewing in the Bond Pits”
Mr. Stockman cited above a pending “demolition derby brewing in the bond pits.”
He refers of course to the bond market. In particular, the market for United States government bonds.
Yet what precisely is this demolition derby brewing therein?
The answer centers upon the looming debt roof “showdown”:
- The current debt ceiling suspension ended on January 1st and there is no hope of it being extended or lifted in a U.S. House divided by just one vote on a red/blue basis…
- It will surely ignite the greatest game of political “chicken” ever witnessed on the banks of the Potomac.
Please explain this game of “chicken”:
- The US Treasury is sitting on a $800 billion pile of cash, along with availability of a few hundred billion more owing to one-time intergovernmental borrowing and lending games.
- However, both of these sources of cash and borrowing to pay Uncle Sam’s bills will be drawn down toward zero at a rapid rate during the first half of 2024 as the UniParty politicians line up in a circle on the banks of the Potomac taking aim and each other and most especially the White House occupant…
Revenge of the UniParty
And so we come to the “real revenge of the UniParty”:
- The US Treasury’s current cash burn rate is the real revenge of the UniParty. It insures that whatever the Trump Administration… might have had in mind on the fiscal front will be quickly overtaken by the Mother of All Debt Ceiling Crises within months and weeks of the inauguration.
Just so. Yet a game of chicken in the political halls is not a demolishing derby in the bond markets.
Certainly you agree that both parties will shake hands and elevate the debt roof — jointly.
Where then is the demolition?
- Without the Fed coming the rescue, interest rates were already fixing to soar — even before the debt ceiling crisis was front and center after January 1st. And if the GOP seeks to move Trump’s $5 trillion tax cut bill on Capitol Hill, the revenge of the bond vigilantes will be even more virulent.
Ah yes, the bond vigilantes. I have written recently about these fiends.
In brief reminder, a bond vigilante is:
“A bond market investor who protests monetary or fiscal policies he considers inflationary by selling bonds, thus increasing yields.”
He is the agent of demolition. And he is afoot. He has been detected:
- Already the handwriting is on the wall. The yield on the 10-year UST is up 100 basis points since September 18th despite the Fed cutting the overnight rate by 100 basis points during the same three-month period.
The Handwriting on the Wall
Here is your evidence, in graphic form:
Source: Board of Governors of the Federal Reserve System (US), David Stockman’s Contra Corner.
Concludes Mr. Stockman, with trembling and quaking dread:
- It is only a matter of time, therefore, before the rising purple line below causes cascading dislocations among the $100 trillion of total public and private debt now outstanding.
I believe the fellow is correct. Yet how much time?
I simply do not know.
The answer — as always — is on the knees of the gods.
Blame the UniParty
Yet Washington’s Fiscal Doomsday Machine is whirring feveredly at maximum anti-productive pitch.
At some point a gasket is certain to blow… a chain certain to slip. ..a circuit certain to short.
And the repairmen within the United States Treasury and Federal Reserve?
They will prove themselves hopeless blunderbusses. Imagine a ten-thumbed mechanic attempting to work a wrench.
Now you have the flavor of it.
What will be the likely result?
“A financial and economic s***show that is likely to dwarf all that has gone before.”
President Trump — falsely — will shoulder the blame.
Look instead to Washington’s UniParty. The demolition will be their construction.
Regards,
Brian Maher
for Freedom Financial News
