The watchword for 2018 is: UNHINGED!
That refers to Wall Street, Washington, the Dems and the GOP,
and all the far and near corners of the planet which are implicated in their
collective follies.
The latter begins with the fact that Imperial Washington
has become so dysfunctional that the most powerful government on
earth can’t seem to keep its doors open for more than a few weeks at a
time.
The next continuing resolution (CR) deadline is January 19 and
the route thereto resembles nothing less than kick-the-can-alley.
It’s strewn with $100 billion of unfunded disaster aid, defense and
nondefense sequester caps fixing to be busted by another $100 billion, 700,000
dreamers waiting to be deported, 9 million poor children (CHAPS) facing
termination of medical care and millions more ObamaCare recipients who have
been promised that cost abatement subsidies to insurance companies will be
funded forthwith.
And along with those major bouncing cans are countless
more articles of graft and booty cued-up on Capitol Hill looking for
a legislative gravy train (i.e. CR) to hop aboard.
Likewise, the casino gamblers on Wall Street complacently
attempt to tag another record at 2700 on the S&P 500. Yet that would
represent a nosebleed 25X LTM
earnings heading into a bond market rout that is certain to result
from soaring treasury issuance and the Fed’s impending bond dump-a-thon.
Worse still, the Donald insouciantly unleashes tweet
storms about the alleged Trumpian boom when the next recession is
statistically just around the corner. After all, the current so-called
recovery will pass the existing 118 month record, which occurred under the
far more propitious circumstances of the 1990s, in April 2019.
But when it comes to Unhinged, nothing tops the GOP’s
disgraceful plunge into fiscal turpitude. The once and former party of
fiscal rectitude and a constitutionally required balanced budget
has unleashed a torrent of red ink, which under the circumstances, makes
Barack Obama’s profligacy pale by comparison.
What we mean is that circumstances matter, and that piling $800 billion of “shovel
unready” stimulus on the recession-bloated Federal deficit in 2009 was bad
enough. But 108 months on from the Obama Stimulus with the official
unemployment rate at 4.1%,
a huge discretionary leap into more red ink borders on madness.
Even the most incorrigible Keynesian stimulators have never
argued that you inject massive amounts of borrowed money into the economy
during the 8th inning of a business expansion. Instead, you are
supposed to be shrinking any residual deficit from the last downturn, and,
ideally, running a surplus in order to chip-away at the existing debt.
Yet the Trumpian-GOP has thrown every shred of fiscal
rectitude to the winds at the absolute worse time in modern history. As we
explained last week, the front-loaded tax bill will shrink the revenue
base by $280 billionduring
FY 2019 to just $3.4
trillion.
At the same time, upwards of $200 billion in add-ons for
defense, disaster relief, ObamaCare insurance bailouts, border control,
veterans and law enforcement will drive spending to nearly $4.6 trillion or 20% above
Obama’s outgoing budget of $3.85
trillion (FY
2016).
That’s right. These GOP clowns have left Big Spending Barry in
the dust, and that’s before they get around to auctioning off votes for what
the Donald is now flogging as a “bipartisan” infrastructure bill.
The latter will add hundreds of billions more to the
borrowing tab. That’s because the White House can’t pass an
infrastructure bill without a lot of Dem votes, and the latter will demand real
pork in the appropriations barrel, not some kind of slight of hand tax-induced
mobilization of so-called “private” capital (it’s not “private” when it get
mobilized by a tax incentive bribe).
In short, what was already a structural deficit of $700 billion will erupt
into new debt issuance of $1.2
trillion—-and perhaps well beyond that figure—-commencing
in October. At that very time, of course, the Fed will be dumping
old bonds into the market at a $600
billion annual
rate.
Yet to our knowledge, there was not a single mention of this
pending epic bond market collision during the perfunctory Congressional debt on
a bill that had no hearings and had not been read by the overwhelming majority
of legislators when it was jammed through on Christmas Eve.
And that’s why we describe the GOP’s fiscal policy—among
others—as unhinged rather
than merely reckless or hypocritical. That is, Imperial Washington has been
house-trained for so long by central bank money printing that it has no
clue that it has actually participated in a giant financial fraud.
To wit, the Fed balance sheet at the turn of the century was
only $500 billion, meaning
that in round terms upwards of $4
trillion of
public debt has been monetized during
the course of this century. And so doing, the Fed forced the other
central banks of the world into aping its policy (or suffer soaring exchange
rates), thereby causing even more of Uncle Sam’s massive debt emissions to
be sequestered in central bank vaults around the world.
But now even Keynesian central bankers have realized that they
must pivot toward interest rate normalization and balance sheet shrinkage
(quantitative tightening or QT). Otherwise, they will be caught sucking their
thumbs near the zero bound with no balance sheet dry powder when the next
recession makes its inevitable appearance.
Moreover, from the Keynesian-statist point of view that
would be an absolute political calamity and central bank franchise killer.
That’s because the whole monstrosity of contemporary central banking rests on
the false proposition that—save for the skillful (and “courageous”) ministrations
of central bankers—-capitalism would never recover from recessionary slumps,
and that it has some kind of depressionary death wish, to boot.
Needless to say, the GOP doesn’t even recognize the evil of
present-day central banking and is so confused on the topic that its “low
interest man” in the Oval Office chose an outright Keynesian statist and crony
capitalist larcenist, Jerome Powell, as the next Fed Chairman.
Worse still, the Congressional GOP leaders persuaded the
clueless Trump to also nominate Professor Marvin Goodfriend, whom House
Financial Services Committee Chairman, Jeb Hensarling, described as an
“impeccable conservative”.
But for crying out loud, Goodfriend wants to abolish cash (i.e.
the ultimate protection from state seizure of wealth through control of
bank deposits) so that the Fed can impose negative interest rates during
an “emergency” declared by 12 central bankers.
That’s right. This whack job devotee of Milton Friedman wants to
confiscate the liquid assets of savers if they fail to borrow and spend at the
rate decreed by the monetary politburo in the Eccles Building.
So yes, when it comes to the state’s destructive propensity to
borrow and print money, the GOP has simply become: Unhinged!
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