zondag 2 april 2017

David Stockman Warns "'Stimulus-Blinded' Mules Don't See What's Coming At All"

Reagan’s top economic adviser David Stockman explains why Trump’s tax cuts and his stimulus plan are dead on arrival. The mules of Wall Street were back at it again, buying the dips after the overnight whoosh downward in the futures market. Apparently, it will take an actual two-by-four between the eyes to break a habit that has been working for 96 months now since the March 2009 post-crisis bottom. We think it is plain as day, however, that we are in a new ball game that the "stimulus-blinded” mules don’t see coming at all. To wit, they have been juiced for eight years running by the Keynesian apparatchiks at the Fed who needed permission from exactly no one to run the printing presses full tilt or to rescue the market with a new round of QE or an extension of ZIRP whenever the indices began to wobble.
But now, even the money printers have made it clear in no uncertain terms that they are done for this cycle, anyway, and that they will be belatedly but consistently raising interest rates for what ought to be a truly scary reason. That is, the denizens of the Eccles Building have finally realized that they have not outlawed the business cycle after all and need to raise rates toward 2-3% so that they have headroom to "cut" the next time the economy slides into the ditch. In effect, the Fed is saying to Wall Street: "Price in" a recession because we are! After all, our monetary central planners are not reluctantly allowing interest rates to lift off the zero bound because they have become converts to the cause of honest price discovery, nor are they fixing to liberate money rates, debt yields, and the prices of stocks and other financial assets to clear on the free market. Instead, they are merely storing up monetary ammo for the next downturn. But the Wall Street mules keep buying the dips anyway because they are under the preposterous delusion that one source of "stimulus" is just as good as the next. And since the gamblers have now decreed that the "stimulus" baton be handed off to fiscal policy, it only remains for Congress and the White House to shape up and get the job done with all deliberate speed. But they won’t. Not in a million years. The massive Trump tax cut and infrastructure stimulus is DOA because Uncle Sam is broke and the U.S. economy has slithered into moribund old age.
In that context, it’s not remotely the same as the 12 members of the FOMC sitting behind closed doors for two days jawing about the short-term economic weather; and then at the conclusion of their gabfest, ordering the New York Fed’s open market desk to flood the canyons of Wall Street with cash by buying another $80 billion of bonds with digital credits conjured from thin air. Au contraire. Fiscal policy is inherently an exercise in herding cats and an especially impossible one when the cupboards are bare. The essence of the matter at the present state of play is the legislative equivalent of "no ticky, no washy." Without a 10-year budget resolution for FY [fiscal year] 2018 and associated reconciliation instructions, there is no possibility of passing a tax bill or even an infrastructure spending boondoggle. But hammering out a budget resolution, passing it in each house, and reconciling the differences in conference would take months under the best of circumstances. But given the parlous state of Uncle Sam’s fiscal condition and the partisan acrimony that already suffuses Washington in the era of Trump, passage of a budget resolution by summer would be a miracle in itself.
Indeed, even the thought of surmounting this next daunting legislative obstacle course puts to rest this week’s particular Wall Street fantasy. Namely that after being burned by the Freedom Caucus on Obamacare Lite, the Trump White House will now "pivot" to the middle and form a coalition with the Democrats to make a deal on corporate tax cuts and infrastructure spending. Yes, and if dogs could whistle, the world would be a chorus. That is to say, there is no conceivable fiscal policy menu that could be agreed upon by Speaker Ryan, Nancy Pelosi, Chuck Schumer, and the Donald, and then be shoe-horned into a 10-year budget resolution. Yet without a budget resolution and reconciliation instructions, there is not a fiscal stimulus "ticky" and no grand bipartisan compromise on building airports and slashing corporate tax rates. So what lies directly ahead, therefore, is another bumbling attempt by the White House and Congressional Republicans to hammer out an FY 2018 budget resolution and what amounts to a 10-year fiscal plan. And it is there where the whole fantasy of the Trump Stimulus comes a cropper. There are not remotely 218 GOP votes for what would be a $12 trillion-13 trillion add to the national debt with the Trump Stimulus program over the next decade, even with all the "dynamic" scoring and revenue "reflows" that are imaginable. To be sure, this is why the GOP Congressional leadership stoutly insists on a deficit-neutral tax cut. They are keenly aware of the debt monster they have been kicking down the road, even if the headline-reading robo-traders of Wall Street are not.
What that means, in turn, of course, is that the rapidly fracturing Trump/Republican coalition must find the offsets on the spending side of the ledger. In short, the whole enterprise amounts to budgetary madness and demonstrates the monumental magnitude of the Debt Trap that has enveloped the Imperial City. And the “buy the dip” crowd will soon be getting that two-by-four between the eyes. So now is not the time to buy....