The Narrative Changes: Republicans "Pour Cold Water" On Trump's Massive Stimulus, Will Block Tax Cuts

Tyler Durden's picture

The driving catalyst behind the furious market rally since the presidential election has been the market's hope that Trump will unleash a "huge", still undetermined, debt-funded financial stimulus package, which will grease the volatile handover from monetary to fiscal policy, boosting inflation and rerating risk assets higher. Indeed, the market was so transfixed by this hope, that it has so far ignored all warning signs, duly noted previously on this website.

Nearly a month ago, we warned that when comparing Trump's proposed budget and the House's own budget blueprint,  "An Unexpected $12 Trillion Hole Emerges In Donald Trump's Plan To "Make America Great Again"." 

As we first demonstrated, there was a massive $12 trillion debt difference between the plan that Trump espoused, which envisioned a $5 trillion cumulative increase in debt...

Debt Under Central Estimate of Candidates' Proposals (Percent of GDP)

... compared to the budget blueprint approved by the house earlier this year, which in turn seeks to reduce the deficit versus current projections by $7 trillion over the next ten years, mainly through spending cuts: the result is a $12 trillion "hole" between the Trump and the House budgets.

Needless to say, the market didn't care.

We followed up just a few days later with "A "Big Problem" Emerges For Trump's Economic Plan", where we reported that while the market may (still) be blissfully unaware about the emerging conflict between Trump's debt-fueled vision for the future, Republican politicians had started to notice. As we wrote, Republican lawmakers warned "that there could be a major obstacle to enacting President-elect Donald Trump’s agenda: the national debt."

“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.”

“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).

The market, once again, did not care.

That may change now, however, with Bloomberg reporting what we have been saying for the past month, namely that republicans, under Mitch McConnell, have "poured cold water on the idea of a massive stimulus package, effectively laying out markers on taxes and spending that that could cramp Trump’s ambitions."

As Bloomberg explains, Trump’s race to enact the biggest tax cuts since the 1980s went under a caution flag Monday when during a news conference, "Senate Majority Leader Mitch McConnell warned he considers current levels of U.S. debt “dangerous” and said he wants any tax overhaul to avoid adding to the deficit."

In other words, the market's narrative that Trump will be the president to pursue a seemingly "liberal" economic growth agenda, one funded by trillions in new debt issuance, just got a very rude wake up call.

“I think this level of national debt is dangerous and unacceptable,” McConnell said, adding he hopes Congress doesn’t lose sight of that when it acts next year. “My preference on tax reform is that it be revenue neutral,” he said. There is one problem with revenue neutral growth when it comes to risk asset prices: they, too, remain neutral.

In other words, if McConnell - who now appears set on collision course with the biggest drier of Trump's growth strategy - gets his way, the entire Trumpflation rally may be unwound.

Here, Bloomberg repeats what we have warned all along: "The Committee for a Responsible Federal Budget, a nonpartisan think tank, has projected that Trump’s plans would increase the debt by $5.3 trillion over a decade, with deficits already over $600 billion a year and rising on autopilot. If Trump achieves the plans he has laid out, “the deficit’s going to be a lot higher than expected, at least in the short term,” said Stan Collender, a budget expert and former Democratic congressional aide. It could rise to $1 trillion per year for four years, he said."

As for Trump’s infrastructure plan, touted as costing roughly $1 trillion but with more than 80 percent of the financing coming from the private sector, McConnell said he’s looking forward to seeing the details.

“What I hope we will clearly avoid, and I’m confident we will, is a trillion-dollar stimulus,” he said. “Take you back to 2009. We borrowed $1 trillion and nobody could find that it did much of anything. So we need to do this carefully and correctly and the issue of how to pay for it needs to be dealt with responsibly.”

Then there is the debt limit, which will need to rise next year to avoid defaulting on government obligations; McConnell said he wasn’t sure if that would be paired with any deficit-reduction measures next year as it was in 2011, when Republicans held the debt limit hostage and extracted more than $2 trillion in deficit cuts over a decade from President Barack Obama.

House Speaker Paul Ryan has also said he wants tax changes to be deficit-neutral, indicating that Republicans will assume positive macroeconomic benefits from tax cuts to ease the projected budgetary hit - a process known as dynamic scoring that is popular on the right.

McConnell offered little specificity on changes to Obamacare, saying the Senate would kick off the new year with an Obamacare resolution and then start working on a replacement. Simply waiting wasn’t an option, he said. “The notion that we could do nothing and allow the current law to implode is unacceptable,” McConnell said. “So, I hope no one believes no action is possible or appropriate.”

That replacement process could take as long as three years, according to Republican senators, although some conservatives, particularly in the House, want a much faster timeline. In the short term, eliminating all of Obamacare -- including its taxes and Medicare cuts -- would add to the deficit, the Congressional Budget Office concluded in 2015. Before the election, McConnell had said he hoped to work on limiting eligibility for programs like Medicare and Social Security if Hillary Clinton was elected. He didn’t repeat that call Monday. That in turn would make the optionality of any Trump debt-funded stimulus even more remote, and could forece Trump to choose between repealing Obamacare and pursuing tax cuts and economic stimulus.

Finally, even if all the changes are implemented immediately, and the GOP rolls over, virtually none of Trump's stimulus package will generate any impact on the economy until some time in 2018 as Goldman calculated last week.

One interesting wrinkle, as Bloomberg notes, is that Trump has named McConnell’s wife, former Labor Secretary Elaine Chao, to head the Department of Transportation, which would likely make her one of his point people on any infrastructure package. That particular "horse trade", may be the wildcard that helps Trump clinch his desired stimulus package, especially if no other Republicans dare to defy the President-elect.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Deathrips's picture

The Day of the Rope draws near and the rope list gets longer.


Fuck you McConnell..fuck your wife too!


Fuck you Bernanke too....just because!!



55 men's picture

To me, its like when a business is struggling, there first idea to help pay the bills is to increase prices... i say this is a huge mistake, cut prices or customers will go somewhere else

Cynicles's picture

crony capitalism always fails, like socialism

junction's picture

It will be tough for Trump to circle the wagons against his Republican opponents, Trump only has one wagon.

toady's picture

The whole #nevertrump kinda fell by the wayside after Trump won, but the R's hate him as much as the D's, if not more because he fucked over every one of them in the primaries. 

Trump will do well to remember that...the R's that everyone is assuming will work with Trump are more likely to fuck him.

philipat's picture

So if this is how the RNC wants to play it, Trump should go for a Balanced Budget, Line Item veto etc. Then hold them to it. Of course, he still has "A phone and a pen"?

CheapBastard's picture

Gee, no one quibbles about those $10 billion fighter jets.

Keyser's picture

Where the FUCK were McConnell and Ryan when Obozo doubled the national debt in 8 years? Fuckers need to be drawn and quartered on the west lawn of the white house... Hell, I'd pay good money on PPV to wach it... 

froze25's picture

Serously ,  for one frigging time in the last 25 years we get a guy that will actually spend the money here instead of on blowing up and rebuilding some third world country and no no no, now we need to tighten the belt. Are you Phucking Kidding me!

J S Bach's picture

Trump has a lot of natural moxie.  If the Kikeservatives try to block his agenda, I predict he will do an end-run around them by social-mediaing his message and goals directly to the people.  He will let them know who it is impeding his progress to "make America great again".  This will force the lickspittle swampgressmen to comply or face possible "unelection" the next time around.  After all, this is all any of them really care about.

The Saint's picture
The Saint (not verified) J S Bach Dec 12, 2016 11:55 PM

McConnell is as stupid as he is ugly.  Harry Reid is no brainiac and runs circles around McConnell.


letsit's picture
letsit (not verified) The Saint Dec 13, 2016 12:36 AM

True. Because it's easy to get rid of the debt. GET RID OF THE FED.

techies-r-us's picture
techies-r-us (not verified) letsit Dec 13, 2016 12:36 AM

Yep. The most corrupt institution in America.

stizazz's picture

Yet, Trump never once mentions getting rid of it. Mm! The rich stick together.

philipat's picture

Dear letsit, tazs, techies-r-us, stizazz, lock-stock, beauticelli, Mano-A-Mano, mofio, santafe, Aristotle of Greece, Gargoyle, bleu, oops, lance-a-lot, Loftie, toro, Yippee Kiyay, lonnng, Nekoti, SumTing Wong, King Tut, Adullam, espirit, rp2016, Holy hand grenade of Antioch, One of these is not like the others, amongst many others, I wonder why you continue to talk to yourself? When you use honest disclosure in the link to your Biblicism Institute site (Even though the site has no connection whatsoever to your comments) I will  not respond with a SPAM alert. So there is no need to talk to yourself to prevent my SPAM alert appearing right below your fake links. Unless you see the need to congratulate and/or reassure yourself on your clever comments, knowing that nobody else will? Alternatively, it can only mean you are seriously mentally ill. Talking to yourself is not good; you MUST remember to take your meds.

Manthong's picture

It seems that they forget that they are subject to re-election.

They are walking on eggshells if they butt heads with Trump.

Old war horses can (and should) be replaced.


For Ages We Shall Reign's picture


If one were to study history accurately, they would conclude that DEAD FUCKING BANKERS ARE THE ANSWER.

Offthebeach's picture

( from survalanc audio at McConnel residance...)

"Chao wear pants! Chao Dragon Lady dis family Mr. Turtle Head! You do I say! You lick floor clean, now!....awww what dis? Turtle Head cry? You disgust me ( slam door. Wimpering sounds )...."

( End of audio )

auricle's picture

If Trump truely wants to make America great again, he's going to have to do it debt free. Otherwise, he's a charlatan like the rest. You can't make america great again by doping it up again with feel good debt. 

gatorengineer's picture

you have a ton of damage done by the last X years, it isnt a magic wand to do it one step.  he has shown signs of going after the MIC pork, he needs corporate tax cuts to get the corporate centers back that moved over seas.  Along with them come the high paying jobs, jobs pay taxes.

He needs to be able to gut the regulations that have crippled small business.  Very little he can do with a stroke of his pen.

He needs these libtards to help him.  He back Ryan and now Ryan is sticking it up his ass.

Omen IV's picture

The Republican Party will morph into the Trump Party - if McConnel et al dont cooprate then in two years Trump will begin the replacements to Trump Republicans and clean out the remaining Dems as well outside the big cities - McCassell in Missouri / Sherrod Brown in Ohio / and many more

McCann must go - but it is six years before that happens - he is a pain in the ass - zero value for the citizens - Graham same


there will be return to identifiable Patriots - the money based guys have to go

ThanksChump's picture

That isn't true.


If Trump raises forward-debt in a bid to increase tax revenue from new corporations that the forward-debt buys, then that forward-debt becomes forward-net. It's not that hard to understand.


That is what he claims to want to do.


Will that work? I think it will. I'd wager the people who can plan beyond their next nap think it will work.

MEFOBILLS's picture

It is  kikeservatives that have McConnel brainwashed to think that all money must originate from a debt instrument.  Owning the money power is (((their))) rent seeking scam.

 To pay off current debt, can be done in many ways.  One way is to channel exogenous money (created outside of the private banking system) toward principle on debt instruments.

If  new exognous treasury money (U.S. Notes) channels toward productivity modes on the way to paying down principle, then that is a win win.  LIft a finger and look at history, this method is largely how the major combatants funded WW2.

The Constitution clearly gives Congress the money power.

Another way would be to make 100 year bonds (deficit spending), private banks buy said bonds, then sweep them into the reserve loops of their banks, then the FED buys them with their keyboard in a QE swap on overnight market.  The government now has new endogenous (private bank) credit, and it channels it into infrastructure (not war).  This former bank credit becomes salary, then consumption/savings, and goes on to pay down private debts.  If it pays off principle, the credit disappears while simultneously vanishing the debt instrument.

 “My preference on tax reform is that it be revenue neutral,” 

McConnel methods would preclude deficit spending.  The government's deficit is the peoples savings.  McConnel needs to make himself familar with Wynne Godley's sector equations, to then undo his hypnotic trance.

We cannot afford to have stupid people in Congress.  Even smart people who are ignorant of how the debt money system works have become harmful


eatthebanksters's picture

Mitch McConnell...the Kentucky dolt who takes his marching orders from the same people as Paul Ryan and Hillary...fuck all thises guys. Someone is getting to them. Its uncanny that the closer Trump gets to being sworn in the more 'scandals' are found and the more the establishment Republicans become obstructionists.  I hope Trump steam rolls these dumb fuckers. 

DC Exile's picture

In DC circles McConnell is well-known as a queer. His marriage to Chao is a front. Chao's a miserable, childless, mind contolled-fraud who gave her soul to the devil long-ago. Turtle-head is as compromised as Miss Lindsey Graham. Don't get me started on Pizzaboy Ryan.

weburke's picture

all bullshit of course, the reserve currency MUST go into debt.

detached.amusement's picture

I just hope it might hit the level of "Quite Revealing" for some that need it

snr-moment's picture

How "fake news'ed" can you be.  Government spending has a multiplier effect.  YOURS doesn't.  Now STFU

Keyser's picture

What part of Obozo doubling the national debt do you disagree with? English not your first language or is it that dildo you have stuck up your ass? 

Mustafa Kemal's picture

The Reps have just made their first play in establishing their presence in the proceedings.

JamesBond's picture

It's called Jockeying for Position before the start of the race.



SilverRhino's picture

McConnell and Ryan were too busy eating cheese pizza.  

wildbad's picture

good point CB. There are lots of "fighter jets" out there.

Reality sucks though and when the jets are stricken from the menu jobs will dissapear and the entitlement hole WILL grow bigger.

That it will "cost more in the short run" to lay Obamacare to rest is a joke though. Nevertheless there is much pain coming and anyone who imagined Trump could, would should avoid that is just wishing.

Dabooda's picture

Balanced budget and line item veto would be great.  Unfortunately, that's not what Trump wants.  More spending = more of the same.  If he REALLY wants to stimulate the economy, he ought to cut government spending, regulations AND taxes.  And end the damn stupid, evil wars on "terror" and "drugs."

Mike in GA's picture

" cut government spending, regulations AND taxes.  And end the damn stupid, evil wars on "terror" and "drugs."

These are the exact things he plans to do.

Dabooda's picture

And you know this -- how?  Cut spending?  Really?

I kinda had hopes that Trump would bring his great personal business experience to bear and DECLARE BANKRUPTCY.  Default on the national debt, and it won't be a problem any more, hm?

But all we're hearing is more spending on infrastructure, military, same old same old.  Cutting some regulations is good, but hardly enough to save a sinking ship of state.




JRobby's picture

The Empire Stikes Back

Return of the Jedi

johngaltfla's picture

I don't think, nor did I think, the GOP-E got the message:

We hate your fucking guts.

Come late April, if Obamacare isn't repealed and the tax cuts not in place, shit is going to get real.

Chris Dakota's picture
Chris Dakota (not verified) johngaltfla Dec 12, 2016 10:54 PM

Trumps cabinet is starting to look like a military junta.

Why do you think he is doing this, be honest please.

Citizen_x's picture


More popcorn ? 

yeah...more popcorn.

Midas's picture

If I had to guess I would say he has a disdain for politicians.  Generals good, CEOs good, Ivanka good, anyone but a politician.

snr-moment's picture

only way he survives the current junta?

Mustafa Kemal's picture

Generals, Bankers, and  the head of Exxon

Dancing Disraeli's picture

Personally I want more trannies.  Like Michael.

Jack's Raging Bile Duct's picture

Trump is an authoritarian. A silver-spooned existence surrounded by sycophants has given him an appreciation of machismo command style. The type of personality that goes with their gut instinct. People tend to like those whom are similar to themselves. This type of douche bag is readily found in military hierarchies.

JRobby's picture

What we see happening was expected as a possible response.

They are preparing accordingly.  Dec 19 could be pivotal. A historic date of change.

MFL5591's picture

“I think this level of national debt is dangerous and unacceptable,” McConnell


Where was he when the last 20 Trillion was spent?  Of course, he was sitting on his fat ass voting for the spending!

Secret Weapon's picture

Two reasons. First, Trump values loyalty and duty to country and ex-military pushed out by Obama fit the bill.  Second, he does not trust the CIA and FBI any further than he can throw them because they are too politicized. He trusts the military (right or wrong) to back him up and give him good intel (and maybe prevent his assasination).

WillyGroper's picture

by default mcconnell's wifey won't be getting her kibble?

chao chao chao...or isit chow chow chow?

mao mao mao or meow?