A "Big Problem" Emerges For Trump's Economic Plan

Tyler Durden's picture

Last week, when looking at the divergence between Donald Trump's proposed fiscal plan to "make America great again" on the back of an unprecedented fiscal stimulus boost which is expected to add $5.3 trillion to the debt over the next decade...

 

... and the deleveraging fiscal plan espoused by House Republicans...

... we pointed out something disturbing: the two plans were roughly $12 trillion apart over a cumulative ten year period, a difference equal to more than one-quarter of total federal outlays.

Then earlier today, none other than Fed vice chair Fischer issued a clear warning to the new administration:

  • FISCHER: NOT A LOT OF ROOM TO INCREASE U.S. DEFICIT WITHOUT ADVERSE CONSEQUENCES DOWN THE ROAD

adding that there "enormous uncertainty around new US fiscal policies."

Judging by the market's reaction, there is little uncertainty, although that statement is certainly accurate for members of Congress who appear to have finally woken up to what Trump's policies mean for the US.

The result is the first major problem to emerge for Donald Trump's economic policies.

Perhaps the GOP read over the weekend what we reported, or maybe did the math on their own, but as The Hill writes this morning, Republican lawmakers warn that there could be a major obstacle to enacting President-elect Donald Trump’s agenda: the national debt.

The website once again lays out the generic framework of Trump's plan: "Trump called during the campaign for a $1 trillion infrastructure package, $5 trillion in tax cuts, increases in military spending and the repeal ObamaCare, which could cost more than $350 billion over 10 years. At the same time, the president-elect has promised “not to touch” Social Security or make cuts to Medicare. The cost of Trump’s plans and the lack of concrete details on how to pay for them could become a problem for congressional Republicans next year, especially when they are faced with raising the nation’s $20 trillion borrowing limit sometime after March."

“I was disappointed that it wasn’t brought up in the campaign — anybody’s campaign really — it really wasn’t mentioned,” Sen. Jeff Flake (R-Ariz.) said of deficits and debt.

“So I’m very concerned about it. It’s going to be tough to address if there’s no push from outside of the Congress,” he added. “I’m very concerned about it. It’s the biggest problem we face, by far.”

Conservative groups are worried as well. They say Republicans must not lose sight of fiscal restraint now that they are set to control the White House and Congress.

“We did not hear anything about entitlement reform from either of the candidates, and that’s a serious issue,” said Michael Sargent, a research associate at The Heritage Foundation. “You cannot address the growth in spending without addressing entitlement issues.” Well, perhaps if the campaign was engaged in non-stop daily midslinging between Trump and Clinton, someone would have "heard" about it. Alas, now it is a little too late.

Compounding the problem is the expected Federal rate hike to arrest rising inflation, which would increase the cost of the nation’s debt.  Flake noted on the Senate floor in September that for every quarter point that interest rates rise, the federal government would have to spend an additional $50 billion annually to service the debt.

Ultimately, the problem regarding the US debt is not so much Trump's, as that of Republicans who would have to support it. Readers will recall that Congressional Republicans assailed President Obama early in his tenure over soaring federal deficits, which exceeded $1 trillion dollars during his first four years in office. As a result, debt reduction was the main focus of GOP leaders after they took back control of the House in 2010.

“It is a problem and going to be a problem. Don’t forget that Obama has doubled the debt and if interest rates were at their historic norms, the deficit would be $612 billion bigger,” said former Sen. Phil Gramm (R-Texas).

This is precisely the point made by Nassim Taleb yesterday in a series of tweet as noted here previously:

 

Fast forward to Trump's campaign trail, where as the Hill adds, "deficits barely gained any notice on the campaign trail."

Trump focused on immigration, trade and economic renewal while Hillary Clinton talked about infrastructure, immigration reform and campaign finance reform. The media largely focused on the personal attacks the candidates leveled against each other.

 

Trump advisers have suggested the new administration will be able to trigger massive private sector investments in infrastructure without a huge increase in spending. They say federal expenditures in the form of tax credits could be enough to get projects underway.

 

In the absence of a specific plan, what has garnered more attention is the overall number attached to his infrastructure plan: $1 trillion.

“In regard to infrastructure and the things that have been talked about, nobody really knows the details. As we talk about them, our conference will be very concerned about how they affect both the debt and the deficit,” said Sen. John Boozman (R-Ark.), a member of the Environment and Public Works Committee, which has jurisdiction over infrastructure.

Others are also realizing what the missing link is to "making America great again." Sargent, of the Heritage Foundation, said he’s seen as many as four different iterations of Trump’s infrastructure plan, all of which he says would raise the deficit.

“I’ve seen everything ranging from direct stimulus to a $1 trillion in tax credits, both of which would obviously raise the deficit. The tax credits, he claims, would pay for themselves. I do not see that at all. The assumptions that are built into it I think are wildly optimistic,” he said.

Lawmakers spent months negotiating ways to pay for a six-year, $300 million highway bill that passed last year. It was the first multi-year highway bill to pass in years, and Senate Majority Leader Mitch McConnell (R-Ky.) lauded it as a major, hard-won accomplishment.

 

Conservatives, however, complained that many of the offsets used to pay for the highway bill were “gimmicks.”

 

Many Republicans in Washington are also skeptical that additional infrastructure spending will provide a boost to the economy. They would prefer to focus on tax reform that closes loopholes and lowers rates.

 

“I know of no case in the post-war era where infrastructure has proved to be an effective stimulus in any country in the world,” said Gramm, a former chairman of the Banking Committee and member of the Budget panel.

To be sure, Trump could alleviate some of the concerns brewing in the Republican conferences by pushing new proposals to curb spending.

Already he has modified his stance on Medicare, adopting language favored by Speaker Paul Ryan (R-Wis.) that Democrats are interpreting as a sign Trump will embrace Ryan’s vision for a dramatic overhaul of the entitlement program.  The transition website states the incoming administration will act to “modernize Medicare so that it will be ready for the challenges of the coming retirement of the Baby Boom generation — and beyond.”

In addition, many Republicans believe that repealing ObamaCare will have a positive fiscal impact beyond the 10-year window scored last year by the Congressional Budget Office. Several Republicans said Trump’s plan to replace ObamaCare with healthcare reforms could open the door to overhauling Medicaid, which was expanded in 31 states under the healthcare law.

“One of the things Donald Trump emphasized in his campaign was the risks of a $20 trillion debt and at the same time he put forth proposals that would increase the debt by another $5 trillion,” said Maya MacGuineas, president of Committee for a Responsible Federal Budget.

“Some changes are definitely going to have to be made. The good news is he’s shown a willingness to do that,” she added, noting that Trump downsized his tax proposal, which initially stood at $10 trillion. Boozman said he hopes Trump will seek to stimulate the economy through regulatory reform, which won’t add to the deficit.

* * *

But what may be the biggest wildcard, is what Trump advisor Steve Bannon said in his interview with the Hollywood reporter last week:

"I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, 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 — conservatives, plus populists, in an economic nationalist movement.”

The problem is that bond traders are fully aware of this and as they discount the coming deluge in debt - in a time of rising rates - making negative interest rates rapidly a thing of the past. And as a result of the record and continuing surge in global yields over the past two weeks, the bond market may just price out the very reason that sent yield soaring, making much of the proposed deficit expansion impossible. Unless, of course, Trump quickly makes up with Yellen, pushing for a dovish Fed, one that would proceed to monetize much if not all of the billions in coming deficits.

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Tim Knight from Slope of Hope's picture

It will be as exciting as the 1930s"

 

Oh boy.

Pinto Currency's picture

Rates globally are set to head much higher:

http://www.safehaven.com/article/43077/president-trumps-immediate-emergency

Trump has stepped into a trap of debt/bond bubble and equity bubble collapse. Paper assets heading for massive deflation.

brightdayfin's picture

AGREED!  (deflation coming regardless of what he does, that is)

This Might Hurt's picture

If anyone thought Trump cared about taking on debt, thought it would be a problem, or wouldn't spend money like a drunken sailor, they REALLY haven't been paying attention. 

BaBaBouy's picture

""A "Big Problem" Emerges For Trump's Economic Plan""

Whats the problem???
The USD Is Soaring ==> US export Goods will plunge...
He could Easily double the deficit and improve the overall economy, and still the USD will be Fine.
The problem right now is the soaring USD pricing the US out of the Intl Markets!!!

Trump has to jump into the Fiat Currency wars occuring around the Globe...
IE... Devalue paper fiats...

BennyBoy's picture

 

Think Bigger. Moar debt equals moar money!

NotApplicable's picture

The only question is, what will Janet do?

Whoa Dammit's picture

The biggest economic (and social) problem is all of the EBT eaters we have here now.

BuddyEffed's picture

A lot of people comment here about debt, whose debt it is, and how to fix a problem with debt.  They are missing the point.   Debt (and money btw too) is basically a derivative on an economy of real things moving between real places and owners.   Real stuff like real energy supplies and real metals and real food, and real shelter and clothing are the true drivers now.    

And this report implies that there won't be any paper overing that is a solution : 

https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Storm...

And I'm getting the impression on the banking side if the debt doesn't continue to grow to make banking numbers look stable (no matter who is president), then there will be unstable banking side effects.   The stability of some of the banks does seem to be in question, with recent scandals where they tried to improve their bottom lines in creative ways.

Tall Tom's picture

 

 

 

Debt remains the true driver as that is how Dollars are created.

 

Our currency has not been backed by industrial production or commodities since the early 1970s.

 

How it is and what needs to be done are two entirely different concepts.

 

I am far more concerned with how it is and how to deal with it...TODAY rather than some fix which is impossible under the current Ponzi Scheme dynamic.

 

This system cannot be salvaged. That is the dismal reality. It will be replaced. But it is not fixable. It is far beyond that state.

SafelyGraze's picture

105% increase?

double it.

triple it.

quadruple it.

that is called "growth"

it is the most powerful engine ever devised.

use it. exploit it. turn it loose. 

 

ali_baba's picture

HAHAHAHAHAHA

OMG This is too funny.

Stupid, stupid goy. You DO have to hand it to them man. They are clever as fuck!

beemasters's picture

End/Nationalize the Fed. Problem solved.

hxc's picture

End it. If you think Congress should run the printing press, you are fucking insane.

Déjà view's picture

Rating agencies have taken cover. Since S&P downgrade to an overrated AA Aug. 2011 another $6T in debt has been added...

Egan-Jones honestly assest U.S. credit worthiness...unlike big-3 do not maintain a conflict of interest. What happens to integrity in a very CORRUPT BANANA REPUBLIC SYSTEM...

https://www.bloomberg.com/view/articles/2012-09-30/sec-sues-the-one-rati...

Very relieved Trump has BANKRUPTCY experience...

RaceToTheBottom's picture

It makes no difference to me if people jump out of buildings on WS or if people jump out of Trump Tower.

People gotta jump.

If people don't jump, they gotta be pushed...

weburke's picture

the reserve currency MUST go into debt. not a problem. 

Oracle of Kypseli's picture

Trump should declare the FED bankrupt and the treasury take over the currency business

ZH Snob's picture

seems so simple, doesn't it?  we could move into sound money and leave the Fed holding the bag.  the only problem is they hold bonds for every dollar they've printed.  

so, we could have an intermediary period where we have the treasury print all the fiat dollars necessary to pay off all the bonds.  they would hyperinflate into worthlessness.  then the treasury could move to a gold or silver backed currency.  that is, if they still have any.

 

Tall Tom's picture

 

 

 

 

Raise Rates and teach Trump who is boss. It becomes extremely expensive to borrow in a normal Interest Rate environment. And my bet is we will now see that trend develop and continue as she, as well as the rest of the power elite, want to stymie Trump.

 

She ought to shock everyone and do a rate hike of One Full Percent.

lostintheflood's picture

 

The only question is, what will Janet do?

she will do as she is told...

ThanksChump's picture

Much of this assumes that Trump is just another RINO, and is based on his "increased military spending" promise.

Well, he can cut the military budget in half and still increase spending on the military because the .mil budget is largely property management and logistics for unnecessary overseas operations. Operations that he has vowed to cut.

ACA is a huge money sink. Medicare is a huge money sink. Trump+Congress can repeal the taxpayer-funded parts of ACA and Bush's Medicare boost and shave $94 trillion in unfunded liabilities with a stroke of a pen. It will cause moderate pain to boomers, but the US could not afford it when it was signed, and it should therefore have never been signed.

 

Most of the US budget is fat. Great Again and fat are polar opposites.

 

This will hurt people close to me, but those people and I never thought America could be Great Again without a great deal of personal sacrifice, a lot of pain, or even a great many deaths.

tmosley's picture

Yeah, lots of people, especially those in "official" circles, are completely incapable of thinking outside the box. So incapable, in fact, that they demand Trump put himself IN a box. Not going to happen.

Would like to see Medicare and Medicaid repealed and replaced with HSAs. Those people on those programs get their premium covered and some amount of money each month put into the account. Even more fun would be to let them keep any money left in the account in excess of their annual deductible. The cash pricing would force medical services to return to market pricing. Reduce regulation on medical care at the same time and costs will plummet. I'd like to see basic clinics that can be run by anyone with a couple of weeks training that do things like setting broken bones, doing basic stitching, and giving prescriptions for low risk drugs. Such clinics might cover 50% of medical needs and do it for 1/10th or less of what it costs to do it at a hospital today.

hardmedicine's picture

    trump stay away from that BOX!!!

Radical Marijuana's picture

Yes, what exists is a debt slavery system whose basic structure necessarily generates numbers which become debt insanities.

Since the debt controls were backed by the death controls, the only ways to change the established debt slavery systems becoming debt insanities are to provoke death insanities.

Otherwise, inside those established systems the only "solutions" are necessarily "moar debt equals moar money!"

It is politically impossible to overcome the underlying issues regarding why:

“I was disappointed that it wasn’t brought up in the campaign — anybody’s campaign really — it really wasn’t mentioned,” Sen. Jeff Flake (R-Ariz.) said of deficits and debt. ... as the Hill adds, "deficits barely gained any notice on the campaign trail."

It is barely possible to exaggerate the degree to which political economy based upon public governments enforcing frauds by private banks, and the various big corporations that grow up around those big banks, have been enabled by advancing technologies to become exponentially more fraudulent. THERE IS NOTHING INSIDE THOSE ENTRENCHED SYSTEMS WHICH CAN DO ANYTHING ELSE THAN ATTEMPT TO CONTINUE TO GROW.

America became the leading edge of Globalized Neolithic Civilization. Meanwhile, the vast majority of those who superficially oppose that "Globalism" continue to be manifestations of various forms of controlled "opposition" that almost totally take for granted continuing to think and communicate in ways which are based upon thousands of years of Neolithic Civilization based upon being able to successfully enforce frauds, whereby systems that backed up lies with violence became globally integrated systems of legalized lies backed by legalized violence.

It is politically impossible for human beings within the dominate civilization to perceive the degree to which building sociopolitical systems based upon enforcing frauds has required almost everyone to develop attitudes which deliberately ignored the principle of the conservation of energy, and misunderstood the concept of entropy, as much as possible, in the most absurdly backward ways possible.

To sufficiently "Think Bigger" requires going through series of intellectual scientific revolutions, and profound paradigm shifts in political science in general, which applies to combined money/murder systems in particular. Of course, there is practically nothing like that which is publicly significant at the present time, and furthermore, it is politically impossible to imagine that developing in the foreseeable future. Rather the only things that can happen are that the entrenched debt slavery systems will continue to generate greater and greater debt insanities, which can only be resolved by eventually provoking death insanities. The only realistic resolutions of the real problems requires radically changing the death control systems that back up the debt control systems ...

Of course, established systems will postpone doing that until the

accumulating consequences of debt insanities

drive death insanities to spin out of control ...

The ONLY course of action WITHIN the established systems

is to continue to have "moar debt equals moar money!"

RaceToTheBottom's picture

Millionaire Congressmen don't make enough money to understand that sort of stuff.

Radical Marijuana's picture

Yes, RaceToTheBottom!

"Millionaire Congressmen" are paid to NOT understand!

logicalman's picture

The biggest threat to the world's financial system is the world's financial system.

Radical Marijuana's picture

LOL!

Funny because that is true, as well as terrible because that is true!

Dig Deeper1's picture

"NOT A LOT OF ROOM TO INCREASE U.S. DEFICIT WITHOUT ADVERSE CONSEQUENCES DOWN THE ROAD"...so where was this effing nugget of wisdom 8 YRS ago?  BS of the highest order.

Antifaschistische's picture
  • "FISCHER: NOT A LOT OF ROOM TO INCREASE U.S. DEFICIT WITHOUT ADVERSE CONSEQUENCES DOWN THE ROAD"

Really?  REALLY!!!   NOW you say this....NOW!!!   Everyone wants to deny that the absurd spending over the past 40 years is now reversible if we just "accept the consequences".   LOL....the consequences are UNAVOIDABLE!!   We are in deep shit already!!

....and the Hypublicans are worred because Trump's plan will raise the deficit 5T over the next decade....but the 10T over the past 8 years didn't seem to cause too much of a rukus.   What a bunch of hypocrites.   Why doesn't the house pass a Balanced Budget Mandate Spending bill then!!!   Go ahead you bunch of losers....do it!!

Tall Tom's picture

 

 

 

 

If you have a "balanced budget" it stymies Monetary Inflation and then the entire house of cards tumbles down as our currency is a receipt of issued DEBT. There will be no growth and a stagnant decades long depression. I know that you know this.

Antifaschistische's picture

yes, of course, which is exactly why it will not be done...until we have a structural collapse, and the house of card falls, and it is so heavy it also crashes through the floor and we begin our plunge into the abyss.   I'm just bothered by any veteran republican pretending to care about deficit spending....you know, all the hacks that apparently preferred Hillary over Donald.

Tall Tom's picture

 

 

 

And as for Trump's problems...his wall...

 

Well meanwhile in Mexico....

 

http://imgur.com/6ueVt3I    (10 seconds)

 

 

RaceToTheBottom's picture

Tough to do a Balanced Budget when you don't do ANY Budget...

aurum4040's picture

I completely agree babbouy, I hate the debt but in this scenario, the soaring dollar and generally low rates we can pull this off no doubt. Infrastructure spending DOES increase productivity, its creates economies of scale, we have the worst infrastructure in the developed world, we need high speed trains, liquified natural gas refineries, mass amount trucks that use lng, logistics overhaul, - anything that will contribute to long term economic efficiency. its now or never. 

Ghost of Porky's picture

1) Debt jubilee

2) Executive order outlawing fractional reserve.

3) Resign.

Countrybunkererd's picture

That isn't enough.  It is a good start.

swmnguy's picture

1.5) Cut a zero off of spending on the War Machine.

There's no fixing the US economy or public finance while spending $1 Trillion and more per year on the War Machine (counting all Departments; a lot of the spending on nukes is D.O.E., State spends a lot, the alphabet-soup agencies, etc.).

Anybody saying otherwise is blowing smoke.

ThanksChump's picture

Bingo.

The US military budget should be cut to $25 billion dollars/year until the Pentagon finds the $6 trillion it misplaced. Every cent. If they can't, imprison everyone above E6 at the Pentagon, appoint replacements from active duty members, and set the budget to $160 billion/year (double Russia's budget), to be controlled by and regularly audited by GAO.

We can have a better military for a fraction of the cost.

JRobby's picture

Cut the wasteful boondoggle military spending and we might get somewhere.

"Oh No!!! Force the MIC to compete! Be exposed to actual competition! !!"

MIC: "we have no competitors, ha ha ha yweegouh!

Tall Tom's picture

 

 

 

He'd have to stay in office as a dictator in order to enforce it. Congress and a new leader would overturn that as they serve their overlords.

Katos's picture

I wonder why no one came out and cautioned Obama about his massive increase??  All of a sudden  everyone is fiscally responsible???

Katos's picture

I wonder why no one came out and cautioned Obama about his massive increase??  All of a sudden  everyone is fiscally responsible???

Bumpo's picture

Just do what Lincoln did:  Print Interest Free Money directly from the Treasury

spastic_colon's picture

what will be really neat is when the fed DOES NOT raise rates in December........100% chance LOL

fbazzrea's picture

i'm thinkin' the same... 100% chance?? means everyone is absolutely wrong.

step up, step up. time to buy PMs. lots of egg-faced apologists coming soon.

gotta love it. time for a bathroom break. need more popcorn, too.