Stockman: Trump’s in a Giant Debt Trap

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[Ed. Note: To see exactly what this former Reagan insider has to say about Trump and the fiscal threats of the debt ceiling, David Stockman is sending out a copy of his book Trumped! A Nation on the Brink of Ruin… And How to Bring It Back to any American willing to listen – before it is too late. To learn how to get your free copy CLICK HERE.]

David Stockman joined up with Maria Bartiromo on Fox Business to discuss the threat of the debt ceiling and what it means for the Trump administration. During the conversation Stockman raised issue with the looming debt ceiling crisis that comes into effect on March 15 and has yet to be fully addressed and prepared for by the administration. The bestselling author predicted the rise of Donald Trump in his most recent book, TRUMPED! Where he outlined a clear way that the debt can be addressed going forward for the administration.

When asked about Tax overhauls that are being proposed the former Reagan insider highlighted that, “There was a big difference between now and then. Back then the national debt was $1 trillion where now it is $20 trillion today. When we got out of control, which happened in 1981 – the tax cut became much bigger than intended – there was a budget surplus that we could cut. Today they are facing $10 trillion of built in debt before they even approach what Trump talked about the other night.

David Stockman served in the Reagan Administration as the Director for the Office of Management and Budget and understands the complexity and math that goes into deficits, budget spending and government fiscal positions. Stockman is also a two-term U.S Congressman who has also worked extensively on Wall Street. He is the current bestselling author of Trumped! Where he explicitly outlines what the administration must do to bring America back from the brink.

Referencing Trump’s recent Joint Session speech to Congress, Stockman noted, “That speech was the most fiscally irresponsible speech given to the Congress since LBJ’s “guns and butter.” He’s going to raise defense, borders, education, medical credits and on top of that a massive tax cut for the middle class… The numbers don’t even come close to adding up.”

When asked about Steve Mnuchin’s proposed ideas for the Trump Administration and the idea of a reciprocal tax Stockman responded, “I am for a border adjustment tax. It is highly controversial. It will take two years to get through Congress at best. But before then they’re going to have the mother of all debt crises. I don’t know why people are not talking about this.”

“The President is totally misinformed and unprepared about the debt. He said that it is currently down $12 billion on his watch so far. Actually, in the first 35 days the net debt was up $187 billion. He had $382 billion in cash on the day he was sworn in and now it is down to $178 billion now. They’ve burned through nearly $200 billion of cash in the first month.”

“The government is still that far in deficit. When the debt ceiling freezes in and the holiday ends on March 15, the clock will start ticking and by the day people will begin to realize the government is going to run out of cash by June or July. A huge showdown is coming. There is no pathway to a majority in the House or the Senate to raise the debt ceiling by trillions. That will backup everything. The efforts for repealing and replacing Obamacare is turning into a catastrophe.”

“They need a budget resolution for the next fiscal year. They have to have a debt ceiling increase before then. It is a chicken and egg conundrum. The debt ceiling freeze is in and right now it is on holiday. On March 15 it will freeze in. There will be $200 billion on the balance sheet which will dissipate by the day with no borrowing authority. Then where do they get a majority? The Freedom Caucus, Tea Party Republicans are not going to vote for a multi-trillion debt ceiling increase before they repeal Obamacare. The Democrats are not going to help Trump as long as he is slamming their constituencies and putting up walls at the border.”

“The market is totally missing the fact that the tax cut isn’t going to happen. That instead there is going to be this terrible showdown on the debt ceiling. This will create a panic and sell-off like we haven’t seen before. Yesterday was “Tulip Time” and irrational exuberance on steroids. Once it becomes clear that a clock is ticking it will become a massive time to sell.”

“I have looked at the ‘Ryan Plan’ outline. It is Obamacare-lite. It does not fundamentally change direction. The Medicaid expansion stays in place, they just lower the matching rate. Instead of tax credits based on income, they’re based on age. They’re refundable. They’re a new entitlement. The Conservative Republicans are properly concerned about this. The whole cost of the medicaid plus the tax credits is $6 trillion over the next ten years and that will not change hardly at all with the ‘Ryan Plan’… And that is where they are starting. By time they round up a majority, the ‘Ryan Plan’ will be Obamacare-lite. I doubt they’ll get the Conservative Republicans to vote for it.”

“That’s why I say everything is going to breakdown on Capitol Hill. They need to focus on what’s happening on the ground up there, not in the canyons of Wall Street.”

“I think he can learn that he is in a different world [than Reagan]. He’s inheriting $20 trillion of debt with $10 trillion more in the pipeline. Currently conditions are at 106% debt-to-GDP. He has no flexibility. The debt was 30% of GDP then… Donald Trump is not the second coming of Ronald Reagan. He’s inheriting 30 years of flawed policy. He’s in a giant debt trap. He has to stop promising things that he absolutely cannot deliver on.”

“The Trump administration said you would get 4% growth in the U.S Congress gets a tax cut through that would be funded by more deficits. That would help in the long run. In the short run it won’t impact much at all.”

To see more of David Stockman’s interview analysis on the debt ceiling crisis CLICK HERE. To learn how to get your FREE copy of TRUMPED! rushed right to you, CLICK HERE.

Regards,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

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