Stockman Warns "'Stimulus-Blinded' Mules Don't See What's Coming At All"

Tyler Durden's picture

Authored by David Stockman via Bonner & Partners,

Reagan’s top economic adviser David Stockman explains why Trump’s tax cuts... and his stimulus plan... are dead on arrival.

The mules of Wall Street were back at it again, buying the dips after the overnight whoosh downward in the futures market. Apparently, it will take an actual two-by-four between the eyes to break a habit that has been working for 96 months now since the March 2009 post-crisis bottom.

We think it is plain as day, however, that we are in a new ball game that the "stimulus-blinded” mules don’t see coming at all. To wit, they have been juiced for eight years running by the Keynesian apparatchiks at the Fed who needed permission from exactly no one to run the printing presses full tilt or to rescue the market with a new round of QE or an extension of ZIRP whenever the indices began to wobble.

But now, even the money printers have made it clear in no uncertain terms that they are done for this cycle, anyway, and that they will be belatedly but consistently raising interest rates for what ought to be a truly scary reason.

That is, the denizens of the Eccles Building have finally realized that they have not outlawed the business cycle after all and need to raise rates toward 2-3% so that they have headroom to "cut" the next time the economy slides into the ditch.

In effect, the Fed is saying to Wall Street: "Price in" a recession because we are!

After all, our monetary central planners are not reluctantly allowing interest rates to lift off the zero bound because they have become converts to the cause of honest price discovery—-nor are they fixing to liberate money rates, debt yields, and the prices of stocks and other financial assets to clear on the free market.

Instead, they are merely storing up monetary ammo for the next downturn.

But the Wall Street mules keep buying the dips anyway because they are under the preposterous delusion that one source of "stimulus" is just as good as the next.

And since the gamblers have now decreed that the "stimulus" baton be handed off to fiscal policy, it only remains for Congress and the White House to shape up and get the job done with all deliberate speed.

But they won’t.

Not in a million years.

The massive Trump tax cut and infrastructure stimulus is DOA because Uncle Sam is broke and the U.S. economy has slithered into moribund old age.

In that context, it’s not remotely the same as the 12  members of the FOMC sitting behind closed doors for two days jawing about the short-term economic weather; and then at the conclusion of their gabfest, ordering the New York Fed’s open market desk to flood the canyons of Wall Street with cash by buying another $80 billion of bonds with digital credits conjured from thin air.

Au contraire. Fiscal policy is inherently an exercise in herding cats and an especially impossible one when the cupboards are bare.

The essence of the matter at the present state of play is the legislative equivalent of "no ticky, no washy."

Without a 10-year budget resolution for FY [fiscal year] 2018 and associated reconciliation instructions, there is no possibility of passing a tax bill or even an infrastructure spending boondoggle.

But hammering out a budget resolution, passing it in each house, and reconciling the differences in conference would take months under the best of circumstances. But given the parlous state of Uncle Sam’s fiscal condition and the partisan acrimony that already suffuses Washington in the era of Trump, passage of a budget resolution by summer would be a miracle in itself.

Indeed, even the thought of surmounting this next daunting legislative obstacle course puts to rest this week’s particular Wall Street fantasy. Namely that after being burned by the Freedom Caucus on Obamacare Lite, the Trump White House will now "pivot" to the middle and form a coalition with the Democrats to make a deal on corporate tax cuts and infrastructure spending.

Yes, and if dogs could whistle, the world would be a chorus.

That is to say, there is no conceivable fiscal policy menu that could be agreed upon by Speaker Ryan, Nancy Pelosi, Chuck Schumer, and the Donald, and then be shoe-horned into a 10-year budget resolution.

Yet without a budget resolution and reconciliation instructions, there is not a fiscal stimulus "ticky" and no grand bipartisan compromise on building airports and slashing corporate tax rates.

So what lies directly ahead, therefore, is another bumbling attempt by the White House and Congressional Republicans to hammer out an FY 2018 budget resolution and what amounts to a 10-year fiscal plan. And it is there where the whole fantasy of the Trump Stimulus comes a cropper.

There are not remotely 218 GOP votes for what would be a $12 trillion-13 trillion add to the national debt with the Trump Stimulus program over the next decade—-even with all the "dynamic" scoring and revenue "reflows" that are imaginable.

To be sure, this is why the GOP Congressional leadership stoutly insists on a deficit-neutral tax cut. They are keenly aware of the debt monster they have been kicking down the road—-even if the headline-reading robo-traders of Wall Street are not.

What that means, in turn, of course, is that the rapidly fracturing Trump/Republican coalition must find the offsets on the spending side of the ledger.

In short, the whole enterprise amounts to budgetary madness and demonstrates the monumental magnitude of the Debt Trap that has enveloped the Imperial City.

And the “buy the dip” crowd will soon be getting that two-by-four between the eyes.

So now is not the time to buy.

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Whodathunkit's picture

"That is to say, there is no conceivable fiscal policy menu that could be agreed upon by Speaker Ryan, Nancy Pelosi, Chuck Schumer". Each any every one of these shit piles need the two by four between the eyes. Or 223/556. Just sayin

BingoBoggins's picture

just remember - measure twice, smite once

Pinch's picture

Quote of the day:

"If Keynes were alive today, he'd be turning in his grave" Jim Rickards, March 2017 interview with Jason Burack

Monico Sailer's picture

Stockman is probably one of the better people to listen to but he is just so vague. He is right but his analysis for timing the markets is no good.


The guys who left goldman in the 90s and formed Shep Wave are still nailing the markets every move. I just wonder how much longer they can do that. But so far so good. 

ErikE's picture

good calls though. charts don't lie. 

JackT's picture this point everything is so FUBAR that the wick can't even stay lit.

VD's picture

fuck off Elliot Wave shill.


bc the "charts" don't like, or why Elliot died penniless in NJ..... ban these fukbook elliot wave tards off of here.

bamawatson's picture

awwh, let em stay
their ignorant babble is amusing
ironic they include term "sheep"

they, just like liberals, are fun to watch
as they display their astounding lunacy

Rasna's picture

I have a better track record casting bones and looking at chicken entrails that putting any creedence in Elliott Wave.  Elloitt Wave ALWAYS looks good from the rear view mirror.


Rasna's picture

I have a better track record casting bones and looking at chicken entrails than putting any creedence in Elliott Wave.  Elloitt Wave ALWAYS looks good from the rear view mirror.


Squid Viscous's picture

yes schlep wave has been nailing it! so well they have to spam this site every fucking day, lol


aloha_snakbar's picture

Is shep wave a three stooges thing?

BingoBoggins's picture

nice segue - a dearth of the good ones on this site

Vlad the Inhaler's picture

The fact that you were able to give yourself 8 likes is almost more amazing than this stock market bubble.

holdbuysell's picture

Trump will print unbacked US currency alongside the debt-backed fiat to pay for it....until he can't.

Jim Willie's concept of the dollar splitting into domestic and international currencies may be realized.

Regardless, as this trend of unpayable obligations continues, Greenspan will be proven spot on with this testimony in 2005:

Koba the Dread's picture

Trump cannot "print" unbacked currency. The US government cannot print unbacked currency. That role is reserved for the Federal Reserve, a private bank.

Alan Greenspan? He's the clown that caused the problem in the first place. First, Ayn Rand's catamite, then Big Bill's and Little George's! Get real!

Sick Monkey's picture

What did Trump say in a press breifing?

As nieve as that statement is the will seems to be there. A bit late maybe but a least we are not getting the same balony about how great the recovery is. Can he drain the swamp? Eventually they have no choice but trying to time an empty punch bowl is like trying to stay ahead of the numbers in Las Vegas. You're almost better off now with a clean slate. More time to think and research.

Dead Canary's picture

Humpty is about to get Dumptied.

zebra77a's picture

No. What is the real nexus here? The monied interests instructed the federal reserve to inflate this market in the gdp wars of east-west.. However doing so now will ensure an 8 year tenure for a cmder in chief they cannot control. They could decide in their own preservational interests to hammer this market down just to keep the swamp nicely clogged out and Trump free.. However to do so would require a geometric payout to the very persistent  shorts and that cannot be allowed either.  But they do not look to be in control.. 

Who is buying massive calls on vix 50 cent at a one month expiry? Is this a false flag around the corner? Just remember folks those trying to short vix after a massive spike will also be burned by the double tops Wait till the second peak.

Erwin643's picture

Stockman: OK, no really, THIS IS IT!!! WE'RE GONNA COLLAPSE RIGHT NOW!!!!!!!!!!


Stormtrooper's picture

Trump has a phone and a pen.  He'll git'er done!

Herodotus's picture

There is nothing that can be done at this point.

truthalwayswinsout's picture

His timing is terrible.

His style of writing pretends that using big words makes him an intellectual, but I rather think he is niggardly.

Eventually he will be right, perhaps once every 20-30 years or so.

And as for Reagan; the republicans after WWII were the last group who were able to cut the size of the federal government. Since then it has all been pure b.s.

Montani Semper Liberi's picture

" but I rather think he is niggardly."

 I first came across this word while reading  Tolkein's 'The Return Of The King' decades ago, and looked it up in my dictionary to better understand what J.R.R was saying. It's an old English word meaning stingy, miserly.

 Is this the meaning you were trying to convey or were you using big words to make yourself a pretend intellectual?

BingoBoggins's picture

naw, it was for flash and to answer my muse;

"I'll bet someone objects to the use of 'niggardly'"

CNONC's picture

Some years ago, a school administrator, in Florida I believe, used the word "niggardly" in reference to school budgets.  Unfortunately, he used it in front of a group of public school "educators."  He was forced to apologize for being insensitive.

Edit.  It was DC. Of course.

gatorengineer's picture

Until we aren't the reserve currency we can print.....

We also can start a war....

On the downside the economy is so hollowed out its hard to imagine it still standing.... 

The problems are close to trivial to fix however.... getting rid of illegals is a good first step .  Step two is social security tax goes all the way up.  Step 3 is every giverm ent employee is transferred to obowelcare with a 10k stipend for a family.  Step four is to means test based on future earnings all student loans... 5 is to cut the corporate tax rate to 20 percent and a 20 percent border adjustment tax. 6 is a 10 dollar a takeoff tax on airline tickets to fund new airports, a 50 cent a gallon increase on diesel to fund roads and a dime more on gas... 

See fixed before lunch time.

HardlyZero's picture

Yes.  It is all so Thinly supported.  Like the dams and bridges of 2017.  In California and Atlanta.  The negative pensions.  Fiat.  The economy as it is.


jcaz's picture

....By raising taxes and giving out more free shit?  Fuck their stipend- what makes them special?   $10K???  Are you fucking high????  Why not make it $100K, while you're handing out more free money to Government employees!

Rather than pumping MORE money into social security, why not find out where the CURRENT money is going, and quit spending it on shit OTHER than social security.  Let's actually DEFINE "Social Security" for a change, rather than it being a giant slush fund for all the "other" bullshit.

Raising taxes puts more money in the hands of Government- show me in history when this has worked out well.

Step four-  make students academically qualify for a student loan, based on standardized tests. If they don't, go dig ditches.  Or build walls.  Because I'm not paying their fucking student loans when they default because their degrees in African Studies don't translate into marginal revenue.

Step five-  your numbers are arbitrary.  Either the corporate tax is valid or it's not.  Cut corporate taxes to ZERO, because it's a DOUBLE TAX, thus a redundant tax.  Quit making corporations "evil"-  they're who we all are, in the end.  It's not like "Mr Bank America" is looking to fuck us over;

Seriously, dude- do you really think ANY corporation ultimately pays taxes now?  Or MAYBE do they just nod their heads and pass the cost of those taxes down to the end user?   Hmmm........  Hey, let's fine Citibank- THAT will show them!  Mr Citibank won't eat for a year!

Step six-  I'm fucking tired of subsidizing airlines.   Fuck them if they can't turn a profit-  never have,  never will.  Let a free market dictate the airline industry for a change- you'd be amazed how well a business can self-regulate in a free market. The airline business might actually be pretty cool, rather than a fuckpit of TSA and Homeland Security dead-enders doing as little as possible to keep their bogus jobs.

Try dinner time next time- it's longer and more tasty.  Have some wine, that's good for deep thoughts.

steve2241's picture

"Step four-  make students academically qualify for a student loan, based on standardized tests."


If that were done, how would they be able to blow a student-loan-bubble, which is their primary aim?

indygo55's picture

Make the schools that take the money hold some of the paper. That'll give them the incentive to either get the kids thinking and learning or REALLY kick them out.


gatorengineer's picture

Sorry Social Security is not an entitlement it was a promise.  Does no one else see the 7 percent tax drop at 120k?  Yes the giverment frittered it away, but it should be maintained and have honest COLAs..... so the easy fix is to tax more.... I agree that the money has to go to social security.

We need the corporate centers back..  You will never ever get it to zero, so lets try for a real number.

Stipend the federal workers, instead of dropping say 25k on a fed workers health care, cut it to 10k, and them let them buy their pan from obowel care, and pay a grand a month like the rest of us.  It fixes the demographics of the plan.

Airports and roads, if you believe they need work, as most of america does then you need to fund it through user fees.  I think our roads are fine, and if corruption were cleaned up we could cut the gas tax instead of raising it, but that aint gonna happen.


Oldwood's picture

If social security is to be means tested, then just ELIMINATE IT. It is simply welfare at that point and should be named such, and funded from general revenue. Tired of word games. Call shit what it is. And eliminate ALL income taxes in lieu of a sales tax. Stop punishing production, create transparency in taxation and tax imports the same as domestic production. Our current tax system only benefits those who it is supposed to punish and punished those it is supposed to benefit.


artichoke's picture

On the student loan issue, Trump gave the right idea during the primaries.  Put private lenders on the hook, let them underwrite student loans.

Then your 700 700 SAT will get more student loans than a 400 400.  And when your grades go down, or you declare your major in Africana Studies, that won't get you more loans either.  Private lenders will figure all this out.

This has the advantage that engineering departments will continue to see the same flow of students, but the "Studies" and other unemployable departments generally attracting weak students will see the students dry up.  How many out there will pay cash for their Africana Studies degree?  This will lead to the needed wrenching readjustments on the provider side, colleges and universities.

The only thing I don't like about it is that since private lenders will be on the hook, the no-bankruptcy provision (you're a slave to your student debt forever) will really be cast in stone.

DCVoyeur's picture

Hletting them refinace their loans just like every other oan in existance.  That way they can take their rates from 7% to 3% and actully fford to pay their loans down.  Nice idea but the Republicans blocked it since the banks would lose profits. 

DCVoyeur's picture

Let them refinace their loans just like every other oan in existance.  That way they can take their rates from 7% to 3% and actully fford to pay their loans down.  Nice idea but the Republicans blocked it since the banks would lose profits. 

Silver Savior's picture

Why is it always about deporting illegals? Their welfare is a drop in the bucket yet no one seems to talk about the pork projects that are really stealing the money.

artichoke's picture

If you had kids in school or ever used an emergency room, you wouldn't say the damage they cause is minor.

Besides it's demoralizing.  Instead of "we're all in this together" it's "the surplus will be taken and given to the illegals, so screw it."

DCVoyeur's picture

Perhaps 11 million Illegals take 11 million jobs from the Blue colar working people and depress wages.  Nope just rap it in a shit sandwich of racism and call people racist when they want their jobs back. 

HRH Feant's picture
HRH Feant (not verified) Apr 1, 2017 9:29 PM

ZH still being overridden with malware.

Calling Techsupport.

Yen Cross's picture

 I said Erdogan was a VERY BAD~ person. [for reference]

 Stockman is "spot on", and the debt ceiling debacle, is going to get UGLY<


TeethVillage88s's picture

IS IT Time to Re-Form the US Federal Govt/Congress?

Or past due?

Tear up the Budget and Start over, end the 97 type of taxes, fees, licenses, Permits in the USA.

Bankers got everything the way they like it:

- No Term Limits for Congress
- Unlimited Money for Lobbying Congress
- No Limit on Foreign Lobbying of Congress
- No Limit on Soros Type Political Activity
- Fake Govt States on GDP, Median Income, Jobs, Inflation Rates, Economic Health, Foreign Investment Threats
- 97 different kinds of Taxes:
- 75,000 Pages in the Federal Register of Regulations
- 74,000 Pages in the IRS Income Tax Rules
- 2,700 Pages in ACA (Obama Care) Initially, but more than 20,000 pages with all other related regulations
- $530 Total Annual State & Federal Spending on Medicaid (Kaiser Family Foundation)
- $1 Trillion Annual Federal Spending on Medicare (Monthly Treasury Report)
- $900 Billion Annual Spending from Social Security
- $1 Trillion Annual Spending on MIC Security Complex

GRDguy's picture

If THEY really want to stimulate the economy, all THEY have to do is reduce the amount of lyin' and stealin' from the 99%.

But that won't happen because THEIR income depends on the lyin' and stealin'.  

And sociopaths never have enough, no matter how many millions they manage to steal from us.

red1chief's picture

The trolls will say you are "RINO" for not supporting the 1%.

Yellow Zookaninnie's picture

A .01% financial trading transaction tax (both sides) put into an infrastructure fund would provide for, and put, the USA workforce on overtime for decades.


Silver Savior's picture

Pure and simple we need a reset. What that entails depends on who you ask. I call for a gold standard. And don't even tell me there is not enough gold. There is enough gold at the right price.

wide angle tree's picture

I would hate for to see what Stockman would be saying if Queen Hillary had won. Historically the idiots in charge have always found a way to borrow and spend even more money.

SunRise's picture

"Always" is bliss, until "Sometimes" crashes the party.