By David Stockman as originally published on Contra Corner and reprinted here with permission
MAGA is not the only thing the Donald is delusional about. For example, he thought the dip-buying robo-machines were heralding Trump-O-Nomics, when they were merely chasing chart points higher—until the moving averages turned negative.
Likewise, he apparently believes that Xi Jinping is his friend and that America’s hideous $504 billion-to-$130 billion import/export imbalance with China can be remedied by the Art of the Deal. Why, the Donald even said so himself—professing great optimism about a deal at today’s White House press conference.
Then again, those horrible trade figures are the result of rampant central bank stimulus in Washington and Beijing, cost inflation and debt-binging in America, mercantilism and state economic control in China and the corruption of free trade by bad money all around.
Anyway, we don’t think Mr. Xi has been boning-up on the virtues of freer trade with America—notwithstanding his recent “open markets” speech to a hothouse forum of foreign supplicants seeking new opportunities to be parted from their money in China.
Instead, we’d guess that a speech he gave on Tuesday to the Politburo was more to the point. And by your way, the following was delivered while he was chairing a study session on Marx and Engel’s famed economic treatise, otherwise known as “The Communist Manifesto”:
Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, has stressed the importance to study the Communist Manifesto.
The purpose of reviewing the Communist Manifesto is to understand and grasp the power of the truth of Marxism and write a new chapter of socialism with Chinese characteristics in the new era, Xi said Monday when presiding over a group study session of the Political Bureau of the CPC Central Committee.
The ability of the whole Party to solve the practical problems of contemporary China with the basic principles of Marxism should be enhanced.
It’s necessary to “apply the scientific principles and the spirit of The Communist Manifesto to the overall planning of activities related to the great struggle, great project, great cause, and great dream,” he said, calling The Communist Manifesto a monumental work that has a scientific perspective on the development of human society and was written to benefit the people and seek liberation for humanity.
That, and I’ll see your 179% sorghum tariff and raise you with a ban on imported chop sticks and other products threatening to America’s national security.
In other words, the Donald is busy doing what is his job #1. That is, disrupting all that comes across his plate, and most especially as it relates to the Washington fiscal debacle that is metastasizing by the day.
For instance, the individual tax rate cuts, credits and 20% deduction for business income in the GOP tax bill cost upwards of $200 billion per year, but were written in disappearing ink. So the Donald now thinks it would be swell if they were made permanent.
This means, of course, that Uncle Sam’s revenue collections would remain stuck in the sub-basement at 16.5% of GDP while the Donald’s spending program—more defense, more domestic pork, more border walls and control, more law enforcement, more infrastructure, more opioid and drug fighting etc.— will soon cross the 23.0% of GDP line and never look back.
And even the resulting $1.5 trillion per year deficits as far as the eye can see assume there is never another recession in recorded history; and that even as the Federal debt by CBOs optimistic lights hits $34trillion by FY 2028, the 10-year UST yield stays pegged at just 3.7%.
That is to say, after a decade of the impending fiscal mayhem, the benchmark yield ends up only 70 basis points than it was this morning.
We’ll take the overs. That’s because not a day passes in Trumpified Washington that some new hair-brained way to further bury the nation in debt fails to arise.
Just last week, the Donald was apparently feeling the political heat from Kansas, Nebraska, Iowa and other farm belt districts about China’s impending retaliation against hogs, soybeans and sorghum. How about we pay farmers make-whole subsidies for their patriotic contribution to fighting the trade wars, he queried.
Never mind that the GOP paragons of thrift on the House Agriculture Committee had just approved $200 billion of farm subsidies over the next 10-years, including heavy subsidies for crop insurance.
That’s right. Plant your wheat in the dry lands of Kansas: When it rains, collect the money from an ample harvest; when it droughts, collect the money from Uncle Sam.
In any event, the chart below shows what you get when you price out the GOP tax bill sans the phony disappearing ink; the $150 billion per year bust of the defense and non-defense appropriations caps; and various and sundry other budget gimmicks and ruses in the latest CBO baseline.
It adds up to $17 trillion of new debt over the next decade and annual deficits of $2.4 trillion or nearly 10% of GDP by FY 2028.
And, yes, this is all based on Rosy Scenario: Throw in even a modest recession before 2028 and you have a national debt of $40 trillion.
Here’s the thing. That $40 trillion ain’t going to be absorbed at CBOs mere 3.7% bond yield—not next year when $1.8 trillion of “homeless debt” hits the bond pits ($1.2 trillion of new Treasury borrowing and $600 billion of old debt being dumped by the Fed pursuant to QT); and most certainly not for 10 years running as the public debt soars toward 150% of GDP and the social security/medicare rolls lap towards the 100 million mark.
In other words, MAGA man is sitting right in the middle of the all-time fiscal firestorm, yet he doesn’t have a clue that anything is amiss. So when the impending “yield shock” really sends the stock averages into a tail spin, the Donald will not see it coming, but instead will launch the mother of all tweet storms—blaming the Fed for his travails.
And we mean travails. It will take just a couple thousand point drop on the DOW to bring the slumbering GOP pols on Capitol Hill back to life. They do remember the generational wipe-out of 1974, and are not about to be Nixon’d again.
In the meanwhile, the Donald has been busy digging his own fiscal grave with malice aforethought by surrounding himself with an even more unhinged gang of war-mongers and neocons. The latter not only stand for mayhem and Washington aggression abroad, but for open-ended, budget-busting draws on the US treasury.
For example, last week’s utterly rash and unjustified bombing of empty research buildings in Syria for what turned out to be dust storms in Douma, cost upwards of $500 million in missiles, bombs and operation extras. And it was a complete waste that accomplished nothing and fooled no one, while proving once again that Imperial Washington is the world’s greatest outlaw.
And that gets us to the Donald’s bellicose tear this AM, denouncing the Iranian nuke deal as “insane and ridiculous” and complaining that “we gave them $150 billion”.
Well, the number was more like $100 billion and it was their money!
It had been frozen in bank accounts around the world for years by writ of Imperial Washington. Even then, $60 billion was collateral for debt owed to other countries, most notably China, and most of the rest was illiquid.
In fact, the $1.7 billion of cash famously delivered on pallets by airfreight at the time of the 2015 deal had actually been seized from Iran nearly four decades ago by Washington: It was money advanced by the Iranians to buy military equipment from the US under the Foreign Military Sales (FMS) program during the 1970s.
But in February 1979— days before the culmination of Iran’s revolution—Washington and Iran agreed to a Memorandum of Understanding (MOU) that halted any further Iranian advances and voided most pending purchases. The MOU also called for Iran’s unexpended FMS funds to be placed in an interest-bearing account, pending resolution of the exact amount to be returned to Tehran.
Alas, when the Shah was overthrown, Washington promptly declared the deal inoperative and spent the subsequent decades litigating against Iran’s claims for restitution.
In a word, Tehran’s money had been gathering interest for 36 years, which it finally got back after agreeing to the various onerous conditions of the Obama Nuke deal. These included essentially shutting down its enrichment facilities, permitting continuous intrusive international inspections and foregoing a nuclear weapons program that even the 17 US intelligence agencies agreed was non-existent.
So contrary to the Donald’s bombast, the cause of world peace got a big boost, and Iran got it’s own money back. As Pat Buchanan cogently insisted in a recent post, the nuke deal was the very opposite of the “worse deal ever negotiated”:
For Iran has no nuclear bomb or ICBM and has never tested either. It has never enriched uranium to bomb grade. It has shipped 98 percent of its uranium out of the country. It has cameras inside and inspectors crawling all over its nuclear facilities.
But the Donald was just getting started on today’s fact-free tirade. If the US pulls out of the deal on May 12—as Trump, Bolton, Pompeo, the neocons and the Netanyahu lobby apparently intend— the Iranians would have every right to restart their enrichment plants under the terms of the deal.
Not according to Sherriff Trump, however. Instead, he warned, the Mullahs had better get prepared for a Clint Eastwood moment if they even think about restarting their centrifuges:
You’ll find out about that. They’re not going to be restarting anything. If they restart their nuclear program, they’re going to have bigger problems than they have ever had before…”
Thereupon followed a barrage of even greater discordance with reality. Bibi Netanyahu himself couldn’t have told a more ludicrous tale:
“No matter where you have it, Iran is behind it and now unfortunately Russia is getting more and more involved. But Iran seems to be behind everything. The Iran deal is a disaster. They’re testing missiles – what is that all about? What kind of a deal is it where you’re allowed to test missiles all over the place? What kind of a deal is it when you don’t talk about Yemen and all the other problems? Look at what they’re doing in Iraq. Virtually everywhere in the Middle East – if there’s a problem, Iran is behind it.”
In point of fact, Iran has no ICBMs that could even remotely attack America. But it does have defensive short-range and medium range missiles like 30 other nations including lesser powers such as Armenia, Georgia, Slovakia, Kazakhstan, Vietnam, Bahrain, Belarus, Egypt, the UAE and Turkmenistan, and most of the foregoing are good customers of the US arms industry, to boot.
Accordingly, all of the above are allowed to test the military-industrial complex’s finest export hardware, but apparently not the Iranians.
Let’s see. Sitting directly across the Persian Gulf is the greatest warehouse of advanced American weaponry in the world—the roughly $250 billion of fighters, bombers, attack helicopters, missiles, drones, tanks, artillery, electronics etc, which Washington has supplied to Saudi Arabia over the years.
And the Kingdom is now run by a hot-headed 32-year old prince who is itching for a showdown between his Sunni coalition of petro-states and Egypt and the Shiite crescent led by Iran.
Under those circumstances, might the Iranians wish to test their missile defenses? Especially when the latter was explicitly excluded from the nuke deal by all parties to the so-called “P5+1”?
We’d bet they have a case.
We’d also bet the Donald went way off the deep-end claiming that the Iranians have invaded or aggressively “meddled” in Iraq. Last we checked the Shiite government which Washington installed in Baghdad— after it hung the nation’s Sunni strongman, Saddam Hussein—- had invited the Iranians to help clear their cities of the ISIS head-choppers.
Finally, what in the world is the Donald talking about with respect to Yemen?
Saudi Arabia invaded the country when local Shiite factions called the Houthi took power in the nation’s god forsaken capital, where they joined up with the former American supported president and hundreds of millions of US weapons that had been left behind when a Saudi instigated coup failed and fled the capital.
Then using American weapons, logistical support and advanced intelligence resources, the Saudi military has proceeded to wreak mayhem on the country’s civilian population, killing upwards of 10,000 women, children and other non-combatants, and maiming and starving hundreds of thousands more.
Indeed, if the Saudi slaughter in Yemen isn’t genocide, then the word has no meaning.
So you really haven’t seen nothin’ yet. As the Donald piles one delusion upon the next, the nation’s fiscal disaster metastasizes.
Stated differently, the Orange Comb-Over is definitely not making America Great Again. Instead, he’s busy—like today—- discovering more and more ways to deepen the Swamp.