Fantasy and Nightmare in the Acela Corridor

By David Stockman  |  March 26, 2019

Then the shit hit the fan.

– John Kenneth Galbraith, A Life in Our Times (1981)

The Donald was already sure he’s “the President with the most successful first two years in history…” Though I wouldn’t go that far, I agree we’re seeing “Peak Trump.”

Wall Street, too, is flying high in the immediate aftermath of what was to be “Mueller Time” for the president. Instead, it’s “This Dud’s for You!” to even more desperate Democrats and a further discredited Mainstream Media.

So, he’s emboldened… But the Donald is still uninformed, and he remains inexperienced because he’s incurious. He’s often delusional, and he’s frequently unhinged.

And he’s only a symptom of the surrealistic drama inside the Acela Corridor.

The U.S. government is on the verge of a monumental fiscal collapse. Spending for both the Warfare State and the Welfare State is accelerating. Federal receipt growth is grinding to a halt.

We’re probably only months away from a historic eruption of budgetary red ink. Imagine what happens once the impending recession officially commences.

But Imperial Washington is giving the three-initial treatment to a freshman congresswoman from the bluest of blue districts and her “Green New Deal” resolution.

And they’re buying the dip on Wall Street.

Folks, there’s a massive and growing “debtberg” in front of us. That’s the only way to describe what’s become of the massive accretion of public and private debt over the last five decades.

And it’s only accelerated with the Wall Street-driven financialization of the American economy. Ever more capital has been diverted from productive investment to financial speculation and rent-seeking over the past 30 years.

The debt service accumulated by all sectors of the economy during that borrowing spree will weigh on economic growth capacity in the years ahead. The anti-growth Baby Boom retirement burden will settle heavily on America’s diminished economic prospects as well.

The two extra turns of public and private debt on the U.S. economy during the last 50 years amounts to a $40 trillion albatross. The U.S. economy’s historic 1.5 times debt-to-income ratio has metastasized to 3.5 times.

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The Global Financial Crisis was surely a dire warning about this soaring debt burden. But exactly nothing’s been done about it since the pre-crisis peak in 2007.

In fact, the total debt burden has soared from $53 trillion to $70 trillion. And the leverage ratio is stranded in the nosebleed section of both history and financial rationality.

Not only did we waste a perfectly good crisis. We’re kicking a metastasizing debt can even further down the road. And we’ve left it up to the Tweeter-in-Chief’s cheerleaders to manage it from here…

During fiscal 2018, nominal gross domestic product (GDP) was $20.2 trillion. Let’s say the 3.23% growth rate of the last 11 years sustains over the next decade. That would take U.S. nominal GDP to $28.7 trillion by fiscal 2029.

Here’s where it gets strange, courtesy of the pom-pom boys in the White House.

They project that nominal GDP will be $34.7 trillion by fiscal 2029. Well, a $6 trillion annual difference in annual GDP isn’t chump change. It represents $1.1 trillion of annual federal revenues at current tax rates.

It means they think we’ll grow 55% faster than the actual growth rate since 2007.

Folks, I haven’t described the Donald’s alleged “best economy ever” as “the fantasy of MAGA” simply to be contrarian. When it comes to the fiscal dimension, “nightmare” is certainly the more apt designation.

And, still, they’re buying the dip on Wall Street…

How to Sleep Well at Night

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

To common sense,

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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR