Positively Trump Street

By David Stockman  |  February 14, 2020

I hope you have not been leading a double life, pretending to be wicked and being good all the time. That would be hypocrisy.

–  Oscar Wilde, “The Importance of Being Earnest” (1895)

So, it looks, for now, like the Donald’s been spared the ignominy of spending his remaining days in one of Uncle Sam’s hospitality suites.

That surely would have been the eventual consequence of his removal from office and Democrat vendettas that would’ve followed hard thereupon.

But if he’s out of the woods.

In fact, he seems more unleashed than ever.

Further, though, the Tweeter-in-Chief is still just a big, orange distraction, obscuring the bipartisan Duopoly’s assault on constitutional government in America.

That little project hasn’t been slowed in the slightest; indeed, a Trumped-up statist GOP remains in power to bring further assault on capitalist prosperity here and abroad.

I was reminded of how completely the transformation of the GOP into the second party of Big Government has been accelerated by the response of the Secretary of the Treasury to the recent news of another punk gross domestic product (GDP) report out of Europe.

Fourth-quarter real GDP growth printed at an anemic 0.4% annualized rate, bringing growth for the full year down to 1.2%. That’s the lowest gain since the crisis of 2012-13.

Of course, Steve Mnuchin is a clueless knucklehead and Wall Street flunky who got rich by accident in 2009 when he bought a bankrupt subprime high-flyer, Indy Mac, and got showered with billions of free money from U.S. taxpayers to bail it out.

Other than that, the guy who sits in Alexander Hamilton’s chair wouldn’t know macroeconomics from macaroni-and-cheese. But he’s hung around Imperial Washington long enough to ritually intone the most dangerous catechism of modern times.

To wit, the insidious notion that if government agents – including the central bank – are not “al in” on “stimulus,” the Main Street economy is prone to underperformance, recession, and worse.

So, after that punk report crystalized once again the travails of European economies being strangled by socialism and dirigisme, the Donald’s top economic official did not hesitate to attack the one country on the planet which has shown a modicum of fiscal sanity:

Speaking Saturday in London, U.S. Treasury Secretary Steven Mnuchin urged Germany in particular to act.

“There are countries that have opportunities to expand fiscal on top of monetary,” he said. “Monetary cannot be the only economic tool.”

That’s right, Steve.

But what’s wrong with the most potent economic tool of all, capitalism itself?

Governments can’t print, borrow, or spend the macroeconomy into higher growth and greater sustainable prosperity.

Growth comes from the sweat and exertions of millions of workers and the energy and innovations of thousands of entrepreneurs, investors, inventors, and savers pursuing their own betterment on the free market.

Back in the day, every Republican knew at least that much.

And when, in the pre-1980 era, Republicans strayed from the gospel, it was, more often than not, owing to a desire to oil squeaky wheels back home with regulatory or trade protections or fiscal subventions and pork.

“Heterodoxy” consisted mainly of parochial exceptions to the general rule of non-intervention at the national or macro-level.

So, nobody – and I mean nobody – would have talked about “expanding fiscal on top of monetary.” That’s heresy from Harvard Yard.

And, most especially, no one would have advocated deliberate deficit spending to goose the GDP growth rate. The very idea that in normal times – outside of world war or extreme economic collapse – you would deliberately incur deficits was simply beyond the pale.

Yet here we are today with a top GOP official rebuking Germany for doing exactly what it needed to do—and before the fiscal-demographic disaster struck.

To wit, it has one of the oldest populations in Europe and an anemic fertility rate of just 1.5. That means its population will be crashing in the decades ahead, and the ratio of workers versus retirees will plummet.

So, in order to prepare for the soaring costs of socialized medicine and pensions for a ballooning retired population, it has worked diligently to get its fiscal house in order.

After running deficits of 3% to 4% of GDP for the first decade of this century, Germany turned the corner in 2012 and has been generating modest budget surpluses ever since.

This was no mean achievement. That’s because, all the while, the German government was being importuned by apparatchiks in Brussels and the socialist and statist politicians in the rest of the eurozone to throw future German taxpayers under the bus in the name of economic stimulus and greater fiscal union.

Germany’s Deficit/Surplus as a Percentage of GDP, 2001 through 2019

Germany stood its ground against French demands for debt sharing and the fiscal miscreants of Club Med. Accordingly, it’s nearly brought its debt-to-GDP ratio back around the barn to where it stood at the turn of the century.

After rising from 60% of GDP to a peak of 82% in 2010, the German debt ratio now stands at just 61%.

That’s why Mnuchin’s hectoring is especially galling. The U.S. public debt ratio was also about 60% of GDP at the turn of the century. But after it soared toward 90% during the Global Financial Crisis/Great Recession, the Duopoly never looked back.

Now, of course, the King of Debt himself has broken dangerous new ground.

Not only has the small decline in the debt ratio achieved during from 2013 through 2016 been reversed. But massive new discretionary deficits have been baked into the cake for the foreseeable future.

When the next recession hits, the U.S. debt-to-GDP ratio will instantly hit 120%. That’s double Germany’s.

Yet, the U.S. Treasury Secretary presumes to lecture the Germans on how to manage their economy and fiscal policy…

To be sure, as a Wall Street flunky and lifelong Democrat, Mnuchin’s stand in favor of fiscal profligacy is not surprising. Whatever affinity for fiscal rectitude Wall Street once had – and it was considerable before 1980, as I know from direct experience—has long since evaporated.

Indeed, the cult of ever-rising stock prices and the wealth-effects-driven Federal Reserve subservience to it has thoroughly corrupted Wall Street’s stance on fiscal policy.

That’s because at least a simulacrum of economic growth must be maintained in order to keep corporate profits gaining and stocks climbing. Imperial Washington has been assigned the job of making it happen by whatever means necessary.

And should the money pumpers in the Eccles Building not be up to the task alone, then fiscal stimulus is presumed to be the expedient of next resort.

Mnuchin’s apostasy is only symptomatic of the far more dangerous threat that now lies ahead.

The Donald believes that he has been thoroughly vindicated by the Democrats’ misbegotten effort to override the U.S. Constitution out of irrational bereavement over their 2016 election defeat at the hands of the very worst candidate the GOP has ever fielded.

So, whether he’s reelected or not – which is probably now in the hands of the coronavirus and its consequence for the global economy and stock markets – the GOP will have become thoroughly Trumpified and will function going forward as the second party of Big Government in the process of American democracy.

And that means American prosperity will soon be dying in the woods… even if the Donald himself has made it out.

Bring It All Back Home

The combination of the coronavirus outbreak in China and the quadrennial return of presidential roulette in the U.S. has replaced the Trade War as the primary risk for investors.

That’s because, as we’ve been saying for some time now, this is the most politicized market in history.

And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Here’s where I usually say, “Well, The Stockman Letter is made for times like these”…

And I can say that because we brought aboard Michael Coolbaugh to update our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

And he’s doing that. He’s also launched a complementary investment newsletter, Delta Profit Trader, that promises “higher frequency” engagement with markets.

Click here to view the “Delta Profit Summit,” where Michael explains his whole approach to investing in this environment.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

You’ve got to be nimble to win in this market… and Michael’s here to help you do that.

To common sense.

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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