From the Daily Reckoning
BY DAVID STOCKMAN
The talking heads are close to having coronaries on live cable TV owing to the international ramifications of the Donald’s bombast — as displayed again late last week at his now famous press conference. This is allegedly causing grave confusion and doubt among America’s allies in Europe and East Asia.
Maybe next time Washington invites the world to join one of its feckless wars, no one will come.
At the same time that Trump’s antics are causing a long overdue “existential crisis” inside the Warfare State, they are also certain to trigger the thundering financial crisis that is urgently needed.
I am referring, of course, to the impending collapse of the post-election Trump-O-Mania frenzy in the stock market.
The fact is, Wall Street has become completely unhinged as it nears a blow-off top. There is nothing left to inflate the bubble except headline reading robo-machines and a few remaining bears who are on death’s door desperately scrambling to cover their shorts.
Certainly there will be no giant Trump Stimulus to keep the market levitated to the skybox section of history. The “phenomenal” tax plan Trump talked about last week will be dead before arrival (DBA) on Capitol Hill.
That’s because without a massive revenue gain from the border adjustment tax (BAT), which is also close to dead, there is no way to fund the $2 trillion corporate rate cut or the $5 trillion cost of that plus “lower brackets for all” that Trump gabbed about during his meeting with the retail industry CEOs last Tuesday.
Indeed, absent massive revenues from the border tax, revenue-neutral tax reform will degenerate into a K-Street bloodbath. There are not remotely enough politically palatable loopholes and tax expenditures that can be eliminated in order to pay for the Donald’s fistfuls of tax relief.
But with $20 trillion of national debt in place and $30 trillion baked into the cake over the next decade, there is not a snowball’s chance in the hot place of enacting a Reaganesque tax cut financed with more debt.
The ranks of Tea Party Republicans and Freedom Caucus fiscal conservative simply will not walk the plank for a 10-year budget resolution that would result in a Greek-style public debt at 140% of projected GDP.
And rightly so. During the decade of the 2020s, the U.S. will have become a baby-boomers’ retirement colony that would collapse under the weight of so much debt.
Still, without a fiscal year (FY) 2018 budget resolution, there will be no “reconciliation instructions” on tax reform; and without the latter, the Senate will become a 60-vote filibuster-driven killing field for tax reform.
So I think the implosion is now only days away and certainly by March 15.
In short, the robo-machines have “priced-in” a giant corporate tax rate reduction that sell-side snake oil salesman are now building into their earnings forecasts. Taken together, these amount to $15–20 per share on the S&P 500 alone.
But it’s never going to happen because in addition to the fiscal barriers described above, the Trump White House is already on the verge of a terminal political crisis — a condition that the Donald’s brilliant, outrageous, meandering, blasphemous press conference last week only intensified.
Indeed, that performance qualified Trump for the moniker of the Fidel Castro of American politics. That is, the dear leader who can never stop talking, thereby also assuring that “normality” never returns to the Imperial City.
After the presser, plus the travel ban fiasco, the Flynn resignation imbroglio, the massive anti-Trump leaks coming from the bowels of a hostile national security establishment and the renewed media campaign to re-litigate the 2016 elections over the Russian meddling canard, the fledgling Trump Administration is already mortally wounded.
The ruling elites are determined to take the Donald down, and whether they succeed or not, it is extremely probable that Washington will grind to a halt — Watergate era style — by early spring.
There will be no giant tax cut, but there will be a newsflash at some point soon announcing that very fact.
Then the meltdown will begin, and the stock market will run out of buyers because all the robo-machines will be selling the news of breakdown, dysfunction, fracture and crisis in the Imperial City, not Donald Trump’s hopium tweets.
At the end of the day, economic recovery and the restoration of honest democracy in America depend upon a 40–50% plunge in the current wildly inflated stock market. It is that event which would finally discredit the monetary central planners at the Fed and destroy the insidious regime of Bubble Finance they have created.
The Fed’s absurdly low interest rate policies are savaging the nation’s savers and retirees, and thereby drying up the lifeblood of capitalist prosperity.
Likewise, its ridiculous 2% inflation targeting — in a fiercely competitive global economy where U.S. costs and wages are at the top of the scale — is what has caused the massive off-shoring of America’s industrial economy.
What is actually needed is free market financial prices and a deflation of domestic wages, prices and costs.
Then, too, the Imperial City depends entirely upon the massive debt monetization carried out by the Fed and its central bank camp followers around the world. It needs be recalled once again that when Alan Greenspan began this destructive Bubble Finance regime in 1987, the balance sheet of the Fed stood at just $200 billion.
It is now 22X bigger, at $4.4 trillion. That’s a simple but cogent measure of the financial fraud which has permitted the Imperial City to fund the nation’s bloated Warfare State and Welfare State with reckless abandon.
Fiscal rectitude will only return when a thundering financial trauma demonstrates to the American public that a money printing central bank is its mortal enemy and that the Fed’s charter to buy government debt and rig interest rates and stock prices must be forever revoked.
Nor does the crying need for a restoration of fiscal rectitude end on the banks of the Potomac.
All of corporate America is being strip-mined by stock and option obsessed C-suites, which have been turned into dens of financial engineering by the Fed’s Bubble Finance regime.
As a result, trillions of cash flow and balance sheet capacity are being diverted into stock buybacks, feckless M&A deals and dividends and other distributions. As a consequence, inflation-adjusted net investment in productive business assets remains 30% below its turn of the century level.
In the end, this corrosive process is destroying main street jobs and real wages — even as it showers the 1% with insensible gifts of windfall gains.
In Trumped! I presented a chart that summarized the Bubble Finance story of the last 30 years. It shows that the net worth of a bond portfolio manager from Omaha, Nebraska grew by 35X during that interval, while the real income of the median U.S. household ended up a 0.80X of its starting level.
That is, it had declined by 20%.
Saint Warren Buffet has allegedly pocketed another $1.3 billion from his Apple stock alone in the last few weeks.
But unfortunately for Saint Warren and all the others who’ve benefitted wildly from Bubble Finance, the Great Disruptor is about to bring it crashing down.