The Black Swan In Plain Sight---Debt Out The Wazoo

by David Stockman, David Stockmans Contra Corner:

The black swan in plain sight does emit the Donald’s orangish glow, but at the end of the day its true color is actually red.

That is, monumental towers of rapidly rising debt loom everywhere on the planet. For the moment, the artificial cash flow from this unsustainable borrowing spree is keeping a simulacrum of growth and prosperity alive. Yet this whole outbreak of debt madness—-represented by $225 trillion outstanding on a global basis—-is careening toward a financial and economic dead end that will soon crush today’s fiscally profligate politicians and heedless financial punters, alike, in a devastating reset of bond yields.

For our first case in point, the always excellent Wolf Richter published a great chart over the weekend on the exploding US public debt. To say the least, it constitutes a clanging wake-up call amidst the absolute fantasy world that prevails on both ends of the Acela Corridor. That’s because during the mere 8 weeks since the public debt ceiling was suspended by the Donald’s end-run with Nancy and Chuckles in September, the national debt has spiked by $640 billion.

That’s about $16 billion per Federal business day, and they are not done yet. The US Treasury will continue to borrow heavily until the current debt ceiling “suspension” expires on December 8—-at which time it will repair to the old game of divesting trusting funds and employing other gimmicks which circumvent the ceiling, while waiting for Congress to blink and raise the ceiling or authorize a new “temporary” suspension.

As Wolf pointed out, this pattern played out during the debt showdowns of 2013 and 2015, as well, when the resulting “temporary” suspension resulted in borrowing spikes of $464 billion and $650 billion, respectively.

Accordingly, Washington has suspended it way into a $5.7 trillion increase in the public debt in just six years since October 2011. That is, during a period which supposedly constitutes the third longest business expansion in US history.

Indeed, when viewed in cyclical context the latest spike screams out a severe warning. To wit, in the 12 months since the election shock of November 8, 2016, the net public debt— after giving effect to the fluctuations in the cash balance—-has risen by $870 billion to the current total of nearly $20.28 trillion.

That’s right. Way late in the business cycle—–between month #89 and month #101 of the expansion—-the debt is increasing at a rate just under $1 trillion annually. Yet there is virtually no one in the Imperial City or in the Wall Street casino who has even noticed.

Nor have they noticed that revenue collections continue to weaken—-even as a massive surge of spending for the four disasters since August—Texas, Florida, California (fires) and Puerto Rico—– crank up, along with the Donald’s sharply increased temp0 of defense operations.

During the last four months (July through October), in fact, revenue collections came in at $918 billion. That represented just a 2.9% gain over the $892 billion collected in the same prior year period, and barely 1% in real terms after factoring in CPI inflation during the interim.

Needless to say, adding a $1.5 trillion deficit-financed tax cut on top of that over the next decade—–when a public debt of $31 trillion is already guaranteed by the cumulative baseline deficits through 2027— would be the height of folly even under ordinary circumstances. But there are currently twoaggravating circumstances that make it even more dubious.

First, as we demonstrated in our post on Friday, the Brady mark is neither a middle class tax cut nor a supply side growth and jobs stimulant; it’s actually a giant windfall to the top 1% and 10%, who own most of the financial assets and especially equities.

That’s because the bill cuts Federal income taxes for the very wealthy by $2.2 trillion over the next decade owing to repeal of the minimum tax, phase-out of the estate tax and the sharp reduction in tax rates on business profits to 20% and 25% for corporate and pass-thru entities, respectively.

Yet the net tax cut for the entire Brady bill over ten years—according to the Joint Committee on Taxation—is just $1.49 trillion. That means, obviously, everyone else is getting a $700 billionincrease.

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