The Road to Recovery: Global Epocalypse Inevitable According to Trump’s Chief and World’s Largest Failing Bank
The financial end of the world in economic apocalypse is here. A funny thing happened on the road to recovery: Trump’s chief strategist admitted his view of the Trumpian future looks like the Great Depression. Even the world’s largest bank just said global financial default is the preferable way out and most likely way out of the Great Recession that began in 2007/2008. That’s the new optimism. You don’t get better than all of that for an exhilarating view of the imminent future. As Maya MacGuineas, the leader of the Committee for a Responsible Federal Budget, also assessed the situation,
“President-elect Trump is going to be inheriting the worst fiscal situation of any president… other than President Truman … as judged by the debt relative to the economy.” (The Washington Post)
Trump’s solution for that problem requires that we enormously increase that debt and hope to power through. That puts him in a no-win scenario unless he can jack the economy up faster than he jacks up the debt; but we are already seeing the likelihood of that fall apart before the plan begins, as I’ll explain. That Trump’s plan will increase the debt is not just something his critics are claiming but is also something his own chief strategist, Stephen Bannon, admits to from the outset of this journey into oblivion:
“With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything,”Bannon said. “Shipyards, ironworks, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution.” (The Washington Post)
“Throw it up against the wall and see if it sticks” sounds like a description of a last-ditch effort if I ever heard one. It’s certainly not the usual new administration optimism. “As exciting as the 1930s?” Yikes. The plan is for something as exciting as the greatest economic collapse the modern world has known … until now. And clearly the plan here is only made possible by interest so low that it is in some places negative. So, pack the bags on the jalopy because 2017 is going to be a heck of a ride.
I don’t fault Bannon or Trump for this because I have said all along that we will never avoid the economic collapse that our mountains of debt and our greedy banks have already assured. We can only push it off but make it greater by doing so. I may have jumped the gun a little with my prediction of the Epocalypse at the start of 2016, but a year later we have some of the most unlikely places admitting we are going there, so I didn’t jump it by much. (Wait until you read what Deutsche Bank has to say.)
While I’m not surprised at all by where we are headed, I am surprised at Bannon’s stark admission that Trump’s plan will take us on a journey as “exciting” as the Great Depression of the 1930’s — not exactly everyone’s favorite period in history to relate to if one is trying to build belief in a recovery plan.
He’s right, of course, but I’m surprised to find someone who is trying to stir excitement for his plan comparing it to the worst time the oldest people alive can remember — a time they hoped they would never revisit. I suppose I shouldn’t be because that is where we are, and Bannon’s nature is to say things as they are. You just don’t usually hear such stark expression from the president’s chief strategists. Again, such is the nature of our time. (And I’d rather hear things as they are than pretend otherwise.)
While I’m sure Bannon wasn’t expressing dumbfounded joy about experiencing another decade like the Great Depression, he was saying that Trump’s debt-heavy plan is much like Roosevelt’s WPA. That’s where we are — in an economy that has stalled to the point that it will take a WPA-sized plan to move it any further ahead. That thought, too, is not exactly hopeful because we also had a global war to help gas the engines of the economy out of the 30s, and that has been looking more likely throughout 2016, too.
I agreed at the start of the Obama administration that we should take out debt to accelerate the economy and position the nation for a more vibrant future because then we would, at least, be handing the next generation some genuinely valuable merchandise in exchange for all the debt we created … so long as we focused on projects that really needed to be done anyway. While I’m not so sure about the proverbial crumbling bridges that have provided the argument for taking on more debt for a decade or more, there are plenty of needed projects in the form of antiquated sewer systems that are far from capable of handling today’s capacity, major city water systems that still use wooden pipes, etc.
I suggested then, “Do it now, while the price tag is lower than it may be in the future and while the cost of finance is dropping.” But that was then, and it’s too late now for reasons I’ll lay out here. It’s an opportunity that was lost due to a non-visionary, do-nothing-in-the-face-of-catastrophe, obstructionist congress.
I’m for using debt to get some things going when the prices are down and jobs are in short supply and then paying it back as things start picking up. I’m for using debt responsibly like a tool, not like a replacement for the oxygen we breath … but when has the US done that in the last half a century? We have been profligate, lazy debt abusers, paying for nothing as we go, living off the generosity of a future that has no say in the matter.
My thoughts at the start of the Great Recession: there are always projects that need to be done, why not do them when labor is cheaper and easier to find and when the cost of credit is extremely low. That is just common-sense wisdom as a way of creating jobs and getting things done that are government’s responsibility and that have been put off for too long anyway.
However, I have been saying for the last four years that we squandered that opportunity for the past seven years as the Republicans obstructed such attempts and as the Obama administration, frankly, did very little to push such ideas through. Obama had no vision and put more effort into changing bathroom laws. Trump does have vision, but Obama already spent the debt capacity the US had for doing such bold ideas. Now that the Obama administration has doubled the national debt to $20 trillion, the debt relative to the total size of the economy (when measured in GDP), as MacGuineas says, is the highest its been since the end of WWII. Hitting that point is a game-changer in terms of what you can now do with debt.
We’re at 100% of the total economy owed in debt! From what we’ve seen in other nations that are bordering on collapse, going above that mark gets seriously precarious, while even hitting that level suffocates the economy. We’re at a debt load that is only survived at all because interest rates are the lowest they have been in the history of the world. (Literally. No nation has ever given money away to the degree that nations around the world have been doing over the last few years.)
The current budget deficit is already running well over half a trillion dollars a year, and that’s while making interest payments that are almost nil. What will the deficit be if rates rise to historically normal levels, even if we don’t finance Trump’s plan? No one knows exactly what the maximum debt ceiling for any nation is, but I believe we are now seeing a clear sign that we have hit that level, and “throw it up against the wall and see if it sticks” doesn’t sound like a well-thought-out plan that justifies another trillion in debt over time. (Many say it will really come to five trillion.)
Summing up the Trumped-up tax benefits
On the surface of the Trump plan, what’s not to like if your in business or are a stock investor?
- massively increased infrastructure spending … without paying for it
- increased military spending … without paying for it
- repatriation of corporate profits at low-to-no taxes
- corporate tax cuts
- personal income-tax cuts
- capital gains tax cuts
How can you not throw the world’s biggest party when you’re doing all of that? So, let me start by saying I think it willstimulate the economy … and the stock market, too. It has already begun to do so. It is such a massive shift into finally applying fiscal policy toward growth, instead of just relying on monetary policy, that it forcibly revises the timing of my predicted Epocalypse … but probably not by much.
It adds up to a form of government quantitative easing as massive as everything the Federal Reserve has done and more — entirely new ammo just as all the central banks are, as David Stockman keeps saying, “out of dry powder.” The government will issue enough bonds to pay for all that spending and all those tax cuts (which they hope will make it possible for you to amp up spending, too), and none of us have to ever pay for it!
That’s why Reaganomics stimulated the economy so much. We bought everything and left it to others to pay for it. (We’ve just continued to move that along and greatly increase it under George II and Obama.) Since Trump’s plan will be the biggest pay-for-it-all-later flood of stimulus in the history of the nation, how can it not boost the economy? (Hint. I’ll tell you in a moment.)
The Federal Reserve provided $2.2 trillion of direct quantitative wheezing. Trump is promising double that in new national debt alone. On top of that, the amount of new cash back into the country as a result of repatriation is estimated to be about another trillion. And then there is the money they hope you will spend from your tax savings.
But where will all the money go?
Trump knows where the money the government raises through bond issues will be spent (because he will control the spending), but he only thinks he knows what will happen with all the repatriated corporate cash and the corporate tax savings. Will most of that money go to expand factories and create jobs as Team Trump says? … As Ronald Reagan said? While Goldman Sachs is not trustworthy in the slightest, I think they are right on the money here, and I’ll explain why:
“A significant portion of returning funds will be directed to [stock] buybacks based on the pattern of the tax holiday in 2004,” the team, led by Chief U.S. Equity Strategist David Kostin, write. They estimate that $150 billion (or 20 percent of total buybacks) will be driven by repatriated overseas cash. They predict buybacks 30 percent higher than last year, compared to just 5 percent higher without the repatriation impact.” (Bloomberg)
This is a no-brainer in my view because I choose to learn from history. In the absence of strong markets, corporations for the past couple of years have focused primarily on using their cash to buy back stocks and have used their available cheap credit to do even more buybacks. Corporations have found that their boards and CEOs can make a lot more money a lot faster with less risk by playing the market with company stocks and company cash than actually building anything.
These buybacks don’t make any money for the corporations, so it is not “business;” but they generate a ton of money for the wealthy owners as they milk their corporations dry. Why would they change that plan if more free money is on its way? Why would they spend it, as Trump and his tax maestro’s think they will, on capital investments to build products for which demand has been slowing? (If repatriation and corporate tax cuts were conditional based on companies not doing any buybacks, then maybe it would accomplish something more than jacking the stock market up another time; but I’ve heard no rumor of such conditions being built into the new tax code.)
Some of the money will also be spent on increased dividends to shareholders to keep stock prices rising with enticements because that is also what corporations have been doing in recent history. Those dividends will, in turn, get reinvested in more stock speculation.