Welcome To Donald Trump's Very Own Big, Fat, Ugly Bubble

Authored by David Stockman via The Daily Reckoning,

The overwhelming source of what ails America economically is found in the Eccles Building. During the past three decades the Federal Reserve has fostered destructive financial mutations on Wall Street and Main Street.

Bubble Finance policies have fueled an egregious financial engineering by the C-suites of corporate America. This bubble has skyrocketed to the tune of $15 trillion of stock buybacks, debt-fueled mergers deals and buyouts of the last decade.

The Fed fostered a borrowing binge in the household sector after the 1980s. It eventually resulted in Peak Debt and $15 trillion in debilitating debts on the homes, cars, incomes and futures of what used to be middle class America.

It also led politicians down the path of free lunch fiscal policy. By monetizing $4.2 trillion of Treasury and GSE debt during the last three decades, the Fed numbed the US economy from effects of crowding out and rising interest rates that would have come from soaring government deficits. This left the public sector impaled on Peak Debt.

Ever since Alan Greenspan launched Bubble Finance in the fall of 1987, public debt outstanding has increased by nearly 9 times. Measured against national output, the Federal debt ratio has risen from 47% to 106% of GDP.

These actions have stripped-mined balance sheets and cash flow from main street businesses. The Fed has stifled economic growth while delivering multi-trillion windfalls into the hands of a few thousand speculators on Wall Street.

These rippling waves of financial mutation are why the US economy is visibly failing and why vast numbers of citizens in Flyover America voted for Donald Trump for president.

Ironically, even as he stumbled to his victory on November 8, Trump barely recognized that the force behind all the economic failure that he railed against was the nation’s rogue central bank.

Only when it occurred to him that Janet Yellen was doing everything possible to insure Clinton’s victory did he let loose an attack on the Fed. In his famous warning, he leveled that America was threatened by a big, fat, ugly bubble.

Unfortunately, there was never even a hint of policy content behind this campaign statement. It said nothing of a coherent plan to liberate the American economy from the nation’s central bank.

When Wall Street launched a phony Trump Reflation trade during the wee hours of election night, the Donald forgot all about the great bubble. In fact, he quickly embraced it as a sign that investors were enthusiastically embracing Trump-O-Nomics.

No new arrival in the Oval Office was ever more mistaken. The gambling halls of Wall Street were a clear and present danger to his presidency, but Trump had only a small window of time for a counter-strategy.

He needed to quickly puncture the bubble, not embrace it; and his first, second and third actions on the economic policy front should have been to clean house at the Fed. He should have named names and insured that the current Fed incumbents get the blame when the inflated stock and bond markets finally implode.

All the tools were there. The Fed had three vacancies out of seven seats on the Board, and he could have cleared more by demanding the resignation of Janet Yellen and Stanley Fischer from day one.

Instead, the Donald got off-track from the get-go with aiming his efforts against immigrants and refugees; nonsense about the Mexican border; and the hideously bloated Pentagon budget.

While all of that was bad, the Donald’s fatal error was delegating economic policy to Wall Street errand boys. Trump handed economic power to Steve Mnuchin, Wilbur Ross and Goldman Sachs’ next-in-line gatekeeper to Washington, Gary Cohn.

These characters are a slap-in-the-face to the populations in the rust belts which elected him.

At the end of the day, the lines of demarcation are crystal clear. The Fed is Wall Street’s angel and Main Street’s enemy.

The Donald has ended up handing the keys to economic policy to a cabal of Wall Street operators, who have wasted six months doing nothing on the central banking file.

Mnuchin has even toyed publicly with the idea that Yellen might be reappointed because she has done a “good job”.

You cannot talk about reappointing Janet Yellen and making the American economy great again in the same sentence.

To do so is to voluntarily take ownership of the very big, fat ugly bubble that has brought so much hardship to Flyover America.

Yesterday’s announcement of an appointment to one of the Fed vacancies leaves nothing to the imagination.

After finally announcing a candidate for a job which will determine whether American capitalism can even survive, the Trump White House picked the absolute worst candidate available. Trump named Randall Quarles, a veritable creature of the Wall Street/Washington establishment, as his nominee for vice chairman for supervision at the Federal Reserve.Randy Quarles is the former Under Secretary of the Treasury in the George W. Bush Administration. Before founding Cynosure, Mr. Quarles was a longtime partner of The Carlyle Group, one of the world’s largest private equity firms.

In addition to his record as a successful investor, he has long experience at the highest levels of the international financial architecture, having represented the U.S. for many years in the G7, G20, and Financial Stability Forum, and having served the U.S. as Executive Director of the International Monetary Fund, Executive Director of the European Bank for Reconstruction and Development, and as a member of the Board of Directors of the Overseas Private Investment Corporation.


Earlier in his career, Mr. Quarles spent many years working as a partner at the Wall Street law firm of Davis Polk & Wardwell, where he was the co-head of the firm’s Financial Institutions Group and advised on transactions that included a number of the largest financial sector mergers ever completed.


Do not take comfort from the fact that Quarles mimics the Hoover Institution’s version of economics. The notion that it’s fine to intrude deeply into the mainspring of capitalism in the financial markets and distort all financial asset prices, but it should be done based on formulaic rules rather than “data-dependent” policy discretion.

Quarles has professed an affinity for the Taylor Rule, a Rube Goldberg policy contraption invented by one of Milton Friedman’s disciples, and named for himself.

It should be clear to anybody not drinking the Fed’s kool-aid, that it is impossible to accurately measure the Fed’s goals for unemployment and inflation on which the massive $4.4 trillion balance sheet is premised.

How else do you account for the rampant gains in the cost of living plaguing Flyover America that the BLS neglects to even measure? This measure has caused those members of the Fed working in the Eccles Building to pursue even higher levels of inflation.

During the first 14 years of this decade the Fed claimed price levels rose by only 31.7% when everything households in Flyover America were buying to survive had inflated by multiples – in some case 100-300%.

How can there be “full-employment” at 4.4% unemployment claimed by the BLS and the Fed’s monetary central planners, when there are 103 million adults without jobs?

What Randal Quarles brings to the table is a vision of anti-market monetary central planning that is far worse than what has already brought American capitalism to its knees.

The Donald now owns the Bubble and has left his Presidency and the American economy squarely in harms’ way.

There is no doubt that they are bubble blind and have no understanding of the rampant speculation and driven risk-taking their policies have unleashed in the casino. Even Barron’s last cover story made it clear that robo-machines, ETF’s and other forms of passive “investing,” have set the markets up for a thundering crash.

Needless to say, the Fed is only now beginning to apprehend the train-wreck that lies dead ahead. Thus, the June FOMC minutes were grasping for something dimly worrisome:

According to the minutes, some FOMC members acknowledged that “equity prices were high when judged against standard valuation measures.”  Some are even “concerned that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.”

Do ya think?

Does the Donald have a clue?


lester1 Tue, 07/11/2017 - 23:33 Permalink

All in one day President Trump should fire Mueller, and Rod Rosenstein, release all classified documents related to the JFK assasination and the Roswell UFO crash.Watch the liberal media melt down on fact the deep state took out their beloved JFK!

AVmaster (not verified) Pinto Currency Wed, 07/12/2017 - 00:27 Permalink

"Donald Trump's Very Own Big, Fat, Ugly Bubble"Bullshit, when a president takes office he doesn't own anything till after one fiscal year after because he must endure his predecessors' bullshit that was passed before he left... So, shut the fuck up you fuckin know nothing.... SHE LOST GET OVER IT...

In reply to by Pinto Currency

Theta_Burn lester1 Tue, 07/11/2017 - 23:50 Permalink

The magic negro's excuse for the 1rst 2 yrs of his presidency was to point out what bush saddled him with, while he indebted America 1.2 tril a yr. for 2 terms.Trump owns none of this, and ppl with 1/2 a brain know that. the concerning thing is hes doing shit about it, THAT is what he will own... 

In reply to by lester1

Yippie21 Ajax-1 Tue, 07/11/2017 - 23:58 Permalink

Trump wants to audit the Fed, if not end it, no?  Why not just let 'em keep on doing their thing... and then use their actions for public support to end them?  He's giving out rope to a lot of people and institutions in DC right now to hang themselves.   If Yellen tanks this thing she will have NO defense.  Trump can acurrately point to 7 years of inaction quickly followed by 6 months of hikes based solely on a market the Fed wants to tame and Trump's boasts of growth.  I love this stuff.  Stockman is a idiot who thinks a lot of himself.  Trumpw will use the FEd to end the Fed.

In reply to by Ajax-1

GUS100CORRINA Tue, 07/11/2017 - 23:37 Permalink

Welcome To Donald Trump's Very Own Big, Fat, Ugly BubbleMy response: President TRUMP needs to be very careful about claiming credit for the STOCK MARKET valuation because he may end up with EGG in face when, not if, there is an asset reset.We are over built, over leveraged, over weight, over worked and over sexed. LOT's of excess to work off.

seattleslewsz (not verified) Tue, 07/11/2017 - 23:42 Permalink

The problem is that everyone predicted the stock market to crash if trump won. Then they tried to call a market crash after the inaugura tion.  Leave it all to the Jews to see what is right. The only analyst in the United States we use here is Shepwave.  Their track record is correct. While everyone else tries to guess market moves they predict dips and rallies. It is not some myster.ous thing like these people think  at least not as i follow thyem.

Guyzz239 seattleslewsz (not verified) Wed, 07/12/2017 - 04:45 Permalink

ShepWaveShepWave Updates for Wednesday.by ShepWave.comPosted: 7/11/2017 17:39 EST SPECIAL Update for Wednesday: Special GOLD (Weekly and Daily) Charts; 60 min GLD charts; 60 min SLV charts; Daily and 60 minute GDX (mining) charts; weekly and daily Crude Oil charts--update has been published.I have received many emails today from metals and oil traders. We have new aggressive triggers in the metals and mining plays--and have some clarity and potential new trend formation(s) coming in Crude Oil.The Pre-Market / Intra Day Update for Wednesday also published.We will probably be doing some profit taking on Wednesday in our QQQ/NDX related position.Log In at www.shepwave.com for Wednesday's ShepWave Updates. Market volatility will increase that is for sure. But for now let's let the technicals guide our trading decisions and not our emotions. TURN OFF THE CNBC!

In reply to by seattleslewsz (not verified)

Bobportlandor Tue, 07/11/2017 - 23:46 Permalink

HA HA HA Trump set MSM up.Amb Michael McFaul and the Russian Lawyer picture together are tied to Obama. Natalia Veselnitskaya was sitting with Obama’s Ambassador to Russia Michael McFaul during a Foreign Affairs Committee hearing, 8 days after cold-contacting Trump Jr. in Trump Tower. https://www.google.com/search?q=McFaul+and+russian+Lawyer&source=lnms&t… TRUMP comes out smelling like a rose And the REP jackass on radio FU

GoingBig Bobportlandor Tue, 07/11/2017 - 23:52 Permalink

Trump comes out smelling like a rose? What planet are you on? This guy is a bumbling idiot who can't get his shit together for 2 seconds to do anything right for the country. No healthcare, no tax reform..... He's more concerned about his twitter feed like a true narcissist. And make no mistake, he is a classic narcissist. This presidency is such good entertainment I can hardly wait for the next 3 1/2. Of course if we ever get into an tense situation I doubt he will do the right thing but we will see..

In reply to by Bobportlandor

Singelguy GoingBig Wed, 07/12/2017 - 06:46 Permalink

As if Trump can wave a magic wand and get healthcare and tax reform done on his own. Wake up! The real bumbling idiots are the members of Congress who do nothing or if they do anything it is obstructing and delaying what he wants to do. Even members of his own party are working against him; all bought and paid for by their special interest campaign contributers.
As far as his twitter feeds are concerned, it is the only way he can by pass the MSM who are also actively working against him.
I agree it is entertaining but it is also very sad that Washington has turned into such a circus.

In reply to by GoingBig

dirty fingernails Tue, 07/11/2017 - 23:47 Permalink

 The orange narcissist couldn't pass up the opportunity to take credit for the market. Like always, he stepped right into it and was too busy basking to realize it could easily turn out to be a trap. But, he's a moron so the bumbling will continue.

homebody Tue, 07/11/2017 - 23:57 Permalink

Sure idiots, Trump doubled the debt - not.  So many grenades left and so many traitors, it will take a while longer to start the correction - and a lot of pain for all - but not his fault idiots.

RLE homebody Wed, 07/12/2017 - 00:16 Permalink

Might not be his fault...but he is clueless on how to fix it...worse yet he is a completely pathological narcissist without any interest in anyone or anything that is not him...he surrounds himself with family like some kind of third world ruler...he could care less about the homeless or the sick as long as it does not affect him...basically he is a fucking idiot...  

In reply to by homebody

Dumpster Elite Wed, 07/12/2017 - 00:00 Permalink

I was starting to get an odd, positive feeling about my future, for some strange reason...but then, here comes Stockman to bring back the gloom, baby! Yes! Winning...I mean, losing!!!

Don Sunset Wed, 07/12/2017 - 00:00 Permalink

Trump is clueless on the economy, which I have found to be shocking.  I did not expect this at all.  He does own this economy now.  He is, in fact, a fool to boast that the markets have gone up by this and that since he has been in office.

Singelguy Don Sunset Wed, 07/12/2017 - 06:39 Permalink

Really? The man is a multi billionaire. You really believe he got to that position being clueless about the economy? You fail to appreciate that he did no have to run for president. He could have easily dismissed the idea and enjoyed the rest of his life. I believe he actually saw what was going on and that nothing was being done to address it, and none of the other candidates were even talking about it. The man has a big ego, no doubt about it but I think you need a big ego to even want the job. However, he also has a reputation for getting things done, and because of his ego he will do everything he can to keep his reputation intact.

In reply to by Don Sunset

pump and dump Wed, 07/12/2017 - 00:04 Permalink

When Yellen said out of the blue "there will never be another financial crisis in our lifetime" She was really saying the top is in get your money out now to her buddies. Give it time It takes awhile for the magic money to get out and leave the suckers holding the bag.

bshirley1968 Wed, 07/12/2017 - 00:13 Permalink

If you have any argument with this article........especially the part about Trump's dereliction of duty......then you are a complete Trumptard. Stockman is 100% correct."No new arrival in the Oval Office was ever more mistaken. The gambling halls of Wall Street were a clear and present danger to his presidency, but Trump had only a small window of time for a counter-strategy.He needed to quickly puncture the bubble, not embrace it; and his first, second and third actions on the economic policy front should have been to clean house at the Fed. He should have named names and insured that the current Fed incumbents get the blame when the inflated stock and bond markets finally implode.All the tools were there. The Fed had three vacancies out of seven seats on the Board, and he could have cleared more by demanding the resignation of Janet Yellen and Stanley Fischer from day one."There are only two ways to call Trump's actions: he is either dumb as a bag of hammers, or he is in on the take.  I know that doesn't sit well with you Trumptards,  but the facts are the facts.  No way he can save this sinking ship and he should have blew the bottom out it and started over.  But instead,  he played right into their hands and will ride the wave of excuses that he was set up.......when the truth is we were set up and Trump was a major player in the set up.

bshirley1968 Singelguy Wed, 07/12/2017 - 09:02 Permalink

I have read your comments on this thread, and you have some serious denial going on.Trump couldn't/can't save thus ship?  No shit.  That is why he shoukd have hammered it right out the gate.Delay or soften the crash?  Both ideas are stupid.  Delay only gets him blamed,  like Hoover.  Soften is a seriously relative term that leads to pipe dreams like you are holding onto.If he didn't know how "dire the situation is" before he took office, then I got to ask, where the hell has he been?  You are insinuating you know, I damn sure know,  and tons of people on ZH know.  So how is it a "brilliant businessman,  billionaire, 4D chess master, and NY insider not know going in that the mess was this bad.You people make me sick with your weakass excuses and false hope attitudes.  The man is either an idiot or he is in on the game.......there is no third choice, dumbass.  Like Stockman said, the man has done nothing to stop or slow down anything, he has turned his administration over to the Jewish banking cabal that got us here in the first place. Tell me, smartboy, how does that fix or change anything? 

In reply to by Singelguy