Stockman Fears Fiscal Bloodbath As "Mother Of All Debt Ceiling Crises" Looms

Tyler Durden's picture

Authored by David Stockman via The Daily Reckoning,

While the Imperial City is frozen in the Second Coming of Comey, it doesn’t mean that the Washington spending machine is on pause. In fact, the Treasury’s cash balance yesterday stood at only $153 billion — down by $130 billion just since the tax season peak was reached on April 25th.


Uncle Sam has been burning cash at a rate of $3.2 billion per calendar day since then and has no more room to borrow. That’s because the public debt ceiling is frozen at its March 15th level ($19.808 trillion) and the mavens at the Treasury Building have run out of borrowing gimmicks.

The countdown to the mother of all debt ceiling crises is now well underway — with the nation’s net debt sitting at $19.69 trillion. That figure, in turn, is up nearly $500 billion since FY 2016 ended on September 30 with the net debt at $19.22 trillion.

We itemize this torrent of red ink not merely to lament the nation’s dire fiscal plight, but to document a practical point. It will be impossible to pay Uncle Sam’s bills in full after Labor Day unless the debt ceiling is raised well the $20 trillion mark.

Exactly 36 years ago, Washington stood on another symbolic threshold — that is, raising the debt ceiling over the $1 trillion mark for the first time.

Back in October 1981, however, the Gipper was in the Oval Office at the peak of his popularity. He got the debt ceiling over the symbolic barrier at that time because he could still credibly promise that the budget would be balanced within three years. That was after his already enacted tax cuts became fully effective and the already enacted spending reductions took hold.

The nation’s balance sheet then was relatively pristine compared to what it is at present. Even at $1 trillion, the public debt amounted to just 30%of GDP — a far cry from the 106% ratio presently.

Reagan vs Trump Debt Ceiling

Before Capitol Hill gets bogged down in a sweaty August slog desperately looking for votes to raise the debt ceiling by several trillion dollars, it will have mid-year budget updates. They won’t be encouraging.

As my colleague Lee Adler has pointed out, Treasury tax collections have slowed to a crawl. Overall collections are barely even with prior year, and even withholding payments are now coming in at barely 2% on a year/year basis. That is far below the built-in spending growth rate of about 4% — and says nothing to the big increases for defense, law enforcement, border control and infrastructure being sought be the Trump White House.

The four week moving average of withholding collections — about as accurate a real time measure of the US economy as exists — is running below the average wage rate gain of about 2.6% per annum. That means real wage growth is turning negative — not accelerating like the “escape velocity” narrative being peddled by Wall Street.

Witholding taxes annual percent change nominal

The Donald’s odds of leading Washington over the $20 trillion threshold are not even a tiny fraction of the Gipper’s at the time of the $1 trillionbarrier. The latter’s job approval rate was over 60%, whereas the Donald’s will soon dip into the low 30s as the RussiaGate prosecution gathers full force.

Back then it was still possible to pass a clean debt ceiling increase because there was always an end in sight. That is, the fiscal projections always showed a balanced budget or surplus a few years down the road that enabled the illusion of “one and done.”

No more. There is $10 trillion of new deficits built-in over the next decade — even with the Congressional Budget Office’s (CBO) rosy scenario economic forecast, and the deficit path widens, rather than narrows, over the ten year period. By 2027, in fact, the CBO baseline deficit is back above 5% of GDP.

The long and short of it is straightforward. The Democrats are not about to bail-out the Donald when they believe they have him on the ropes. At the same time, there is no GOP majority for any meaningful deficit reduction plan that could be attached to a debt ceiling increase bill as a legislative quid pro quo.

When the Senate GOP committee now working on an alternative health care bill reaches a consensus — if it ever does — there will be virtually no Medicaid cuts left. The so-called moderates have insisted that the Obamacare expansion must stay in place at least for the next five years or no dice.

At the same time, the Donald has boxed himself in with his reckless promise to ring-fence Medicare and Social Security. But when you set those two giant entitlements aside, along with Medicaid, you have taken $2 trillion per year off the table; and that quickly mushrooms to nearly $2.5 trillion per year when you add in $200 billionfor Veterans, the earned income tax credit and retirement checks for former military and civilian employees of the Federal government.

Yes, the Congressional GOP could perhaps agree to a 10% cut ($7 billion) in the $70 billionfood stamp program and a few billion more from some of the lesser low-income entitlements. But self-evidently that’s a rounding error in the scheme of things.

So when foreseen is not a tale of a Trump Fiscal Stimulus, but a Fiscal Bloodbath, take it to mean just that. And unlike the saves which were put together at the 11th hour in August 2011 and October 2015 by President Obama and Speaker Boehner, this time there will be absolute legislative paralysis.

It seems abundantly clear that Speaker Ryan is not ready to quit, and the Freedom Caucus has no intention of voting for a so-called “clean” debt ceiling increase.

Instead, Washington is heading for the unthinkable. That is, the need for the US Treasury to prioritize and allocate spending based on the available inflow of revenues.

That will come as a giant shock to those on Wall Street who fail to understand that Washington is in the midst of triggering the 25th amendment, and that the system will soon be ungovernable.

The prospect of allocation will also mean that debt service, social security checks, military expenditures, law enforcement, Federal payrolls and other high priority payments can be met from current receipts for an extended period of time, thereby prolonging the stalemate even further.

So the Wall Street casino may well shrug off the Comey hearing on the grounds that he did not deliver a red hot smoking gun after all.

But that will prove to be just one more chance to get out of harm’s way. What comes next is a debt ceiling Fiscal Bloodbath that will remove all doubt.

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Crypto-World-Order's picture

Stockman is a joke, those in d.c and abroad have computers. Algos can never stop buying.

hairball48's picture

You're a fuckin' moron. Must be a snowflake mellinnial.


Crypto-World-Order's picture

Old fuck, stockman has been predicting doom for years, you wont see the end times either. Keep on absorbing the doom bitch. it will age you faster

Blano's picture

He might know the numbers, but there will be a debt ceiling increase just like every other one.

Plenty of squawking maybe, but it'll get done.

hairball48's picture

Regarding the debt ceiling...We'll see. As the old saw goes: This time might be different.

The political food fight will be worth watching in any case.


lake's picture

NOT approving a new debt ceiling, in September, will be a perfect way to bring down a sitting president.

When it happens, remember who brought you this carnage...

Corrupt politicians

Murderous banksters

(so-called) Elites.

Traitors should hang.


Bastiat's picture

It will bring down more than a president.

EmeraldWI's picture

We don't have a debt problem, we have an income problem. Tax from the first dollar of "income" and put 60 million more people into the workforce--deficit, SSI and Medicare solved. Cut defense by 50% and fund the WPA since private industry won't employ road builders and environment fixers or apprenticeships. $11 trillion in Bush tax cuts didn't wake Ayn Rand or an invisible hand and overfeeding the fat again, won't work. Wind now costs half as much as coal in England and XOM doesn't sell wind or we'd all drive Tesla knock offs.

rejected's picture

Gee,,, you forgot to tell all the boys and girls that its the taxes that make coal costly.

I'm sure it was just an oversight on your part..... r i g h t....

100% FDA certified horse hockey.

Edit: I'll dare anyone to go on wind power alone. No back up, nothing.

I have a 16kw solar system and trust me,,, coal and oil are far cheaper,,, especially without tax to make them appear more costly. It cost me $24,000. At $0.20 cents per utility kw I'll break even in about 100 years, if nothing breaks.

OverTheHedge's picture

Wow! Mine is 6 years old, and it cost me double! However I have  a guaranteed insanely high tariff from the power co, which means that I am already at about breakeven. It would have been sooner, but the Germans got jealous and insisted that an eu law was passed, reducing the tariff amount. Nice people, the Germans.

So from here, I am on free money, but also I have power should the world end. I don't have any batteries, because if they cut the power, there probably won't be any fuel either, so I plan to cannibalize all the stranded cars. I also plan to take In as many washing machines as I can run, and open a laundry service. Just need an electric golf-cart to do the deliveries.

Assuming that the world ends, but no war goes through my sitting-room, that is.......

Caught_Fish's picture

Forget the stranded cars, go straight for the forklift batteries at one of the closed down warehouses.

48 volts 1 ton ea for a large one.

Get a hybrid grid tie charger inverter.

EmeraldWI's picture

"...  In December 2016, the World Economic Forum reported that as the cost of producing wind turbines has fallen by more than 30% in the last three years, the cost of electricity from wind power has fallen to $50 per megawatt hour on average worldwide, without subsidies. That’s half the cost of coal."  (from the BBC)

And why do the Koch brothers fight the proposed turbines with the funding of "grass roots" organizations in my backyard?

EmeraldWI's picture

BTU hasn't paid Federal taxes in the last 5 years and the coal excise tax is 50 cents to a dollar per ton. What taxes? American taxpays subsidize dirty coal.

Caught_Fish's picture

G,day rejected,

I would check your system or your figures as a quick check with a calculator shows a payback of around 5.5 years.

16kw system producing 10kw per hour at $0.20 is $2.00 per hour.

6 hour annualised daily production $12

365 days $4380

Time to payback excluding maintenance 5.48 years

Expected system life (low side) 20 years

14.52 years at $4380

$63597.6 profit

But I am on my third beer.


chubbar's picture

Got to call bullshit on this one, rejected. First off, congratulations on having a 16kw system installed for 24K, that is as cheap an install you will ever see for a 16kw system unless you did it yourself.

I don't know where you live so it's impossible to calculate your daily KW production. However, I'm in NH, not exactly a bastion of good wx and sun. I had a system that exact size and was producing between 20-22 MWHs per year. BTW, I installed it myself and it cost more than 24K to do so, although solar panels have come down quite a bit since that first install.

At .20/kw, that calculates out to between $4k and $4,400 per year in electricity generated. At 4k/year you are talking a 6 year payback without tax incentives. However there are tax incentives and since you already installed yours, I'm assuming you took the 30% tax credit which means that system cost you $16.8K.

Now, up here in NH we have something called REC credits (renewable energy) which pay about $29/mhw which would mean that system also generates an additional 580/yr in actual cash in pocket.

Also, in NH you can get up to $2500 for that size system after install from the state, which would bring your out of pocket down to $14,300. So, $4k + 580 REC = 4580. 14,300/4580 = 3.12 years to ROI.

That's what the reality is for solar under tax rebates. Down in Mass, I'm told that they had REC credits of $300/MWH. If that's true, which I dont know if it is, then you can see the frenzy over getting these systems installed once you calculate the 2 yr payback and $6,000/yr REC check every year thereafter that they offer those (to say nothing of the free electricity every year of 20mwhrs after payback)

Regardless, your 100 yr payback is WAY off unless you aren't generating squat for electricity which is a function of location. If you have a reasonable location and aren't generating at least 20mwh/yr, you need to have your system checked.

JailBanksters's picture

It's NOT unthinkable at all, it's totally thinkable.

The Creidt Limit HAS to expand, there is no IF'S or BUTT'S about it.

The US $ is a Ponzi Scheme, for foreign bankers, and you can't taper a Ponzi Scheme.

If it doesn't expand, the Government has to change the entire Monetary System,

and I don't see any Politician busting a Jock-Strap to do that any time soon.

Mind you, It will be quite a Show and Funny, will they or won't they, they'll kick it about to make

it look like they are doing something ... but it's going to Increase. It doesn't matter

if it's $365 for a year or a $1 per day, it's the same thing, but the $1 a day sounds

more attactive and they doing something about it.


rejected's picture

"The US $ is a Ponzi Scheme, for foreign bankers, and you can't taper a Ponzi Scheme." 

How do you get people to understand the Federal Reserve Note is not the US Dollar? 

I've tried several times to no avail. How in the hell can you talk intelligently about something when you don't even know what it is?

Silver Savior's picture

It took awhile but in 2013 I decided the Federal reserve note is not a dollar and I opted for silver stacking instead. Totally no regrets!

rejected's picture

The 'US dollar' is a weight of silver. Such weight as determined by Con-gress.

The US dollar is doing quite well....

actionjacksonbrownie's picture

You must be a masochist. You could have stacked almost ANYTHING else and been better off today. But since you seem to enjoy getting poorer, I suggest you bookmark: Jim Willie, King World News, and Silver Doctors. Those three will more than satisfy your self destructive tendencies.

Silver Savior's picture

I have just been watching my silver stack grow over the years. Also there is nothing like taking a bunch of 10 ounce silver bricks and holding them all together. The feeling of so much wealth is very powerful. I do not feel the same about my 401k. 401k feels more like garbage.

JailBanksters's picture

A big part of the Problem is,unless it's on TV the majority of people won't believe what ever you tell them.

What would be the chance of get multiple people on TV saying what the Federal Reserve is, I can tell you, Zilsch.

Instead the Narative is, they know what they're doing, just let them do what ever it is they have to do, and it will all work out FINE.



OverTheHedge's picture

And there is the answer: borrow more, or change the system of money to something based in reality. In scenarios 1, bankers win; in scenarios 2, bankers are destroyed.

Where would you put your money?

Inflation, bitchez!

I am Jobe's picture

Seems as though the states are passing bond measures like crazy. In Billions , wtf and who the fuck is passing these as no one is buying these worthless bonds. Worst culprit School BONDS , keep passing in TEXAS

Blano's picture

Those $60 million high school football stadiums ain't gonna build themselves.

rejected's picture

I like David but I think he is hoping for a quagmire way too much. Congress loves to spend OPM. They may bicker a little but they'll increase the limit.

Really don't know why they pretend to satisfy the Constitution. They eviscerated that within 20 years of its ratification. Today it's worth even less then the Federal Reserve Note.

Don't be shy Con-gress. Show that GD piece of paper what you really think of it.

williambanzai7's picture

Stockman needs to sleep with Bill Gross

whosyerdaddy's picture

What a baby that would make. I call her Doom Sis.

itstippy's picture

Stockman is wrong; there will not be a "Debt Ceiling Crisis" this time around.  There's no political hay to be made in making a stink, and WAY too much political risk.

The last Debt Ceiling Crisis was led by a group of Republicans who wanted to damage Obama's administration and fire up their own base.  It failed miserably as a political gambit and the Republicans were handed their heads in a basket for being responsible for the so-called "government shutdown".

This time around neither party is going to play that card.  It's toxic.  There will be some speeches, and arm waving, and then there will be a clean (for all practical purposes) debt ceiling raise.

It's all about what's best for the two political parties folks, not what's best for the country's future.  Right now it's in both party's interest to keep the money flowing. 

Secret Weapon's picture

My crystal ball sees a toe kicking a can. 

hedda.lettuce's picture

that can been kicked all the way to the alien base in antarctica by now.

venturen's picture

Trump spent his life using debt to go big....won't be different. But anything is better than ?Hillary. 

We are doomed!

silverer's picture

We are doomed, because if you read the blogs about half the numb nut people post, you realize that you are counting on them to lift up the country. Problem is, half the people are being lifted by the other half already. Net gain = 0

ToSoft4Truth's picture

The first charge on a credit card is the problem, not the last charge. 

Money_for_Nothing's picture

Medicaid is the free-stuff-army. They didn't vote for DJT. If the debt ceiling isn't raised DJT gets to pick what doesn't get funded till the debt ceiling is raised. DJT can cut off money to sanctuary cities and send in the National Guard to restore order.

Money_for_Nothing's picture

Medicaid is the free-stuff-army. They didn't vote for DJT. If the debt ceiling isn't raised DJT gets to pick what doesn't get funded till the debt ceiling is raised. DJT can cut off money to sanctuary cities and send in the National Guard to restore order.

Deep Snorkeler's picture

The deficit does not matter.

It is silly money, funny paper.

The government has the power

to change it, devalue it, repudiate it,

or pull a Rentenmark trick.

It doesn't matter what people think.

They will forget it in an hour.

There are no real values.


Schmuck Raker's picture

Let's go back to the original $45 BILLION ceiling from 1935. And let's stick to it this time.

Russdiamon's picture

This sounds like something that could have a negative impact to the market. If you want timing for the drops and dips you should check out this guy. I don’t know how he’s so good at it. But his timing on those kind of moves is great. Definitely worth checking out.

check this out

7againstThebes's picture

Here is my prediction: 1) we grind towards the debt ceiling, 2)the politicos raise the ceiling by a little bit. 3) life goes on. 

This will happen because it has to. Any attempt to actually, seriously deal with the problem would be suicidal -- for THEM,  the politicos

Don't worry, we will get Stockman's explosion but who knows when.  When the moment arrives, feedback loops will go critical before anybody can figure out what is going on.

Schmuck Raker's picture

"The growth that did occur during the Reagan era was in significant degree a result of cheating history.

It was fueled by a massive expansion of the public debt followed by an even worse sin against the laws of sound finance. Namely, the Greenspan money printing regime which egregiously monetized the public debt, thereby killing off the bond vigilantes and deferring the ultimate anti-growth “crowding out” effect of soaring public borrowing to the indefinite future."   -David Stockman

So yeah, fuck Reagan, too.

webmatex's picture

Its just a godam piece of paper - print MF!

tbone10's picture

The same drivel week in week out.....yawn

tbone10's picture

Yada yada yada 

Herdee's picture

It's because of Municipal, State and Federal levels of government having large amounts of debt and yet the tax collection revenues are falling. The NeoCon/propagandists that destroyed the hemp and cannabis industries are forced now to understand through education that there are over 50,000 uses for hemp. That is a threat to both the oil and drug and various other industries. The NeoCons are being dragged, kicking and screaming to find new sources of tax revenue in order to make them more independant of Washington, D.C.'s absolute nonsense because they now know that the more you depend on crooks, the more they want to get you in debt and bankrupt you.

Sir John Bagot Glubb's picture

Seems to me that as long as there are buyers of newly issued US Treasury debt, the debt ceiling can be raised forever.

Jack Oliver's picture

There actually are NO buyers - The FED creates FAKE demand !

Cordeezy's picture

This is just noise, not happening...... until it does