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The Economy: David Stockman, “This Sucker’s Going Down”

Thursday, March 9, 2017 18:49
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(Before It's News)

“This Sucker’s Going
by David Stockman
“I started my political career in
June 1970, as a legislative assistant on Capitol Hill. In the
interim, there have been 23 election cycles and 12 presidential
elections. I can truly say that I have never seen, in all that
time, so much potential trouble in the financial world, in the
political world and in the international environment. That is, I’ve
never seen so much potential for shocks and black swans. Especially
for sudden market turmoil and thumping double-digit declines, given
the tremendous melt-up and complacency that we’ve seen in the stock
market since the November election.
It is almost impossible to
overstate the level of unhinged mania we’ve seen in the stock
market recently, but still, the robo-machines and knucklehead day
traders just can’t seem to let go. Based on stock valuations, the
market is now paying more for “growth” (as measured by GDP) than at
any time in modern history, and 50% more than at even the peak of
the dot-com mania.
As I write these words today, March
9, the market’s skybox valuations and bubble insanities are far
more vulnerable to a thundering crash than they were even in March
2000- and that’s really saying something. Back then, the break did
not occur exactly on the ides of March (the 15th) but 12 days
later. The Nasdaq 100 peaked and then plunged 9% in a single day.
In fact, March 27, 2000, marked the tippy-top of a nearly vertical
rise- followed by a swift and violent retracement.
Which brings us back to today…
Since early Nov., the Dow has soared a ludicrous 3,000 points,
based largely on the delusion that Donald Trump’s bold new
spending, tax cutting and deregulation will revive the flagging
Folks, I’ve got news for you: It’s
not happening.
In fact, The Donald is stirring up
a fiscal calamity like never before. His administration is sailing
right into the jaws of the coming debt ceiling crisis. The debt
ceiling expires on March 15, just six days from now. But when it
comes time to raise the debt ceiling by more than $1 trillion just
to finish out the current year, there will be no GOP majority to
get the job done. The Treasury will burn through cash until it runs
out. The Donald will be left high and dry before a single dime of
his massive tax cuts and infrastructure program sees the light of
According to House Speaker Paul
Ryan, they are not going to even take up tax reform until they
dispose of the GOP’s Obamacare “repeal and replace” pledge. But
that replacement is simply “Obamacare Lite,” and factions of the
Republican Party are already in open rebellion against it. Even so,
the 20–40% cuts in domestic programs Trump’s proposed budget calls
for will positively shatter the GOP majority on Capitol Hill.
Trump’s fiscal program will end up in a crash landing, thereby
causing panic in the financial markets and finally bringing down
the curtain on 35 years of fiscal profligacy in Washington and
Bubble Finance on Wall Street.
Meanwhile, the reflexive dip-buyers
have ratcheted the market 3,000 points higher without any plausible
or sustainable case for it. Economic growth rates are deflating,
productivity has slumped and corporate earnings have been sinking
for eight quarters. Under these conditions, today’s wildly extended
market is a flashing red light, warning that exceptionally high
gains over an extended period necessitate a serious regression to
the mean in the days ahead.
Stated differently, this might be
the most dangerous market mutation we’ve ever seen. The market will
drift higher on pure buy-the-dips momentum until it hits a sharp
object. And that sharp object is approaching fast.
At the peak of the Dutch tulip
mania, bulbs sold for more than 10 times the annual income of a
skilled craftsman and a single rare specimen bulb (Semper Augustus)
purportedly changed hands for the equivalent of 12 acres of prime
land. But after rising 8X in a few months, the reckoning came in
February 1637. The tulip bulb price index came crashing back to
where it had started in, well, November of the prior year! So it
might be wondered whether this most recent November to February
(into March) mania is “there” yet. That question is especially
important in light of the fact that Trump’s recent address to
Congress amounted to the proverbial clanging bell at the top.
In giving the most fiscally
irresponsible speech since LBJ’s “guns and butter,” the Donald
proved beyond a shadow of a doubt that he and his team have no clue
about the horrific fiscal facts of life confronting them. They are
utterly unaware, apparently, that they are plowing right into a
Grand Debt Trap that will put the kibosh on not only the vaunted
Trump Stimulus, but on the entire 30-year era of Bubble
But before I get back to more
detail on the Grand Debt Trap ahead, it is worth noting what
happened during a more recent November to March blow-off rally. I
am referring to the infamous dotcom mania, of course, and it just
so happens that there is a nice symmetry in the numbers as they
pertain to the present.
Between October 24, 1999 and March
22, 2000, the NASDAQ 100 rose from 2,460 to 4,600 or 87%. After
that parabolic climb, however, it soon plunged back to where it had
started in October. Nor was the year 2000 collapse close to done-
it plunged a further 67% through October 2002.
Like the NASDAQ blow-off of 2000,
the current Trump-O-Mania rally started on November 2. As it
happened back then, however, the NASDAQ 100 peaked shortly after
the Fed raised interest rates (again) on March 21. Yet as CNN
reported that day, the Fed’s action was considered to be no big
threat to a then unstoppable bull: For financial markets, the rate
increase and the short announcement that followed was a non-event,
mostly because Wall Street had widely expected the Fed to do
exactly what it did.”
There wasn’t a black swan in the
sky, it seemed- until there suddenly began a dizzying two-year
plunge of almost 85% from the nosebleed peak. This time there is an
Orange Swan hovering above the market, but it appears equally
unrecognized by today’s punters. I am referring to the fact that
the headline reading algos have totally misread the Trump
The robo-machines- and the
remaining troop of day-trading carbon units that mimic them- can
only read words, not the political tea leaves. Accordingly, when
the Donald promised a “big, big” corporate cut and a “massive tax
reduction for the middle class” and also a $1 trillion
infrastructure bill to rebuild “America’s roads, bridges, airports,
hospitals and schools,” the machines dutifully “priced it
But what they haven’t reckoned with
is that the debt ceiling clock starts ticking on March 15 when the
current “holiday” expires. It will then freeze in at approximately
$20 trillion, leaving the Treasury’s coffers with about $200
billion in cash. But the Trump Administration blew through $204
billion of cash during its first 35 days in office. That fact was
apparently unbeknownst to the President, who tweeted the complete
falsehood that he had already reduced the public debt by $12
Au contraire!
The U.S. Treasury is bleeding red
ink profusely- notwithstanding Janet Yellen’s comical claim that
the American economy is closing in on the Keynesian nirvana of
“full employment.” During the first four-and-one-half months of FY
2017, in fact, Uncle Sam’s net debt increased an astonishing $532
billion. That amounts to an annualized borrowing rate of $1.3
Given the Treasury’s cash burn rate
of $3-4 billion per calendar day, the U.S. Treasury will have 50-75
days of cash when the debt ceiling clock starts ticking again on
March 15. That’s less than a week away. And that means it will run
out of cash long before any tax bill even gets out of the House
Ways and Means Committee or infrastructure bill even gets
Indeed, the Wall Street
robo-machines are abysmally un-programmed with respect to the
entire budgetary process. The fact is, none of the components of
the Trump Stimulus can happen until both houses pass and agree to a
FY 2018 budget resolution with its 10-year path for revenues,
spending, deficits and the public debt.
It is only through a budget
resolution that encompasses a comprehensive long-term fiscal plan
that it is possible to get a “reconciliation instruction” for the
tax bill; and without that parliamentary mechanism, tax reform will
die in a Senate 60-vote filibuster stage managed by the K-Street
But here’s the thing. The ticking
debt ceiling clock will mightily interfere with- if not block
completely- the process of reaching an agreement within the GOP
caucuses on the FY 2018 budget resolution. In fact, the legislative
and political maneuvering in the run up to this summer’s debt
ceiling vote will powerfully concentrate the minds of the backbench
fiscal hawks. It will remind them that their fate under the massive
deficits embedded in the Trump Stimulus will be to walk the plank
time after time to raise the debt ceiling!
Moreover, as the media finally
begins to focus on the rapidly dwindling cash balance at the
Treasury, it will elicit a maneuvering, bargaining and posturing
spectacle inside the GOP caucus that will make Speaker Ryan wish to
send the gavel back to John Boehner.
The fiscal conservatives will
demand entitlement reforms, but Trump says no. The Trump White
House has embraced an utterly stupid and unnecessary plan to bust
the sequester caps and add $54 billion to the already bloated $600
billion defense budget for FY 2018 alone- and proposed to offset it
with draconian cuts to domestic agencies and the State
Depart/foreign aid budget which are already “dead in the water” in
the GOP Senate.
But here’s the newsflash. The FY
2018 sequester caps of $548 billion for defense and $518 billion
for non-defense discretionary spending are chiseled in law under
the BCA (Budget Control Act). There is not a snowballs chance in
the hot place that a bill could pass the House which raised defense
to more than $600 billion, while slashing the domestic cap to under
$500 billion. There would be blood on the floor from one end of the
Capitol Building to the other.
By the same token, there would be
an outright revolt by the Freedom Caucus if both caps are raised-
which is the only way to assemble a legislative majority. In the
meanwhile, the drive to “repeal and replace” Obamacare is already
deeply fracturing the House GOP, and it’s going to get
progressively worse.
What’s happening is that the
Freedom Caucus is quickly figuring out what I documented already.
Namely, that the Ryan plan for “repeal and replace” is actually
little more than Obamacare Lite. Not only will the $7 trillion
10-year cost under current law not be reduced in any material way,
but the Ryan plan will also establish what amounts to a new
age-based entitlement to health tax credits.
Taken together, all of these
battles over the sequester caps, Obamacare repeal, a new continuing
resolution for FY 2017 appropriates which will be needed to avoid a
government shutdown in later April will take their toll.
Accordingly, the Mother of All Debt
Ceiling Crisis will occur for the simple reason that there is no
pathway to a House and Senate majority for a multi-trillion debt
ceiling increase.
Perhaps that’s because Washington
has never been there before. That is, facing down a $20 trillion
public debt with $10 trillion more in the pipeline over the next
decade, and a clueless team in the White House that wants to pile
trillions more of red ink on top of that. In a word, the algorithms
driving the stock averages to tulip bulb mania highs can’t possibly
anticipate the political firestorm that is coming down the
When it hits, the machines will
begin puking up a tsunami of sell orders like never before. When
the dust finally settles, there will surely be some new charts that
will give the October-March plunges depicted above a run for their
As the Mogambo Guru proclaims,
“We’re so freakin’ doomed!” We are, folks, and a lot sooner than
later, too, with horrific consequences not just for us but
world-wide. This is deadly serious. Prepare yourselves as best you
- CP

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Total 6 comments
  • Mark Brander

    Economic collapse is not the only event you need to be worried about. Learn the truth about Revelation 12 and the Second Sun. The world is about to change forever.

    • charlie2dogs

      fuk revelation and the doomers and gloomers that have preached that shit for 2000 years.

  • charlie2dogs

    the fukn stock market needs to be destroyed completely, its nothing but criminal activity, greed and corruption, destroy the msm media and the hollywood entertainment industry, and deal with the criminal so called leaders that have fukd this country over.

    • Jack Shlitz

      Especially when you look at the Dow Jones average since the great depression and realize the it did move above 1000 until the 1980′s and now OVER 21k….What the hell’s up?

      • b4

        simple arithmetic…it takes about 20 times more dollars to buy the same thing as in 1970–20 x 1000 equals 20k-that they want 55k for a pick up truck!–2500 in 1970

  • Bob DD

    Hey Dave, nothing has to happen, THIS IS ALL CONTRIVED BY THE GLOBALISTS. Ever heard of We the People refusing to honor this massive debt heaped upon us by the Fed, that charges us INTEREST for every stinking dollar printed, which they create out of thin air. Yes, that’s right, no silver or gold backing. Or blame the stinking DC politicians who got us into this debt on behalf of the U.S. Corporation, not the Republic of America? They sunk the ship and we have to bail with buckets? We the People must strike back and say NO!!!! The same politicians have saddled us with the gambling debts of the banksters derivatives swap debt of $ 1.5 QUADRILLION!. I believe it is Dodd-Frank bill that did that.

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