Finance

Six Impossible Things

By David Stockman  |  September 11, 2018

Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”

“I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”

– Lewis Carroll, Alice’s Adventures in Wonderland (1865)

The Donald is most productive just before breakfast.

There’s this thing with his tweets, though, especially when it comes to the economy.

Actually, it’s more like six things.

And the real thing is that it’s impossible for all six of these things to happen without some other, much worse things also happening…

The six impossible things the Donald believes at any given time (on most days) are as follows:

  • Deficits don’t matter.
  • Tariffs aren’t inflationary.
  • Negative real interest rates aren’t harmful.
  • Tax cuts pay for themselves.
  • Trade deficits reflect dumb deals.
  • Stock bubbles measure the success of Trumponomics.

The beleaguered economy the Donald inherited will go down – waylaid by some combination of these horribly misbegotten notions.

Let’s take a look at who these things might interact…

We’re already starting to see the impact of the Donald’s Trade War.

First, China is not backing down. And, now that Xi Jinping’s coronation is complete, the Red Ponzi is desperately reining in its fantastic and unsustainable $40 trillion credit pyramid.

The most recent global trade data show flows are already slowing. Soon, new tariffs will start pushing up prices.

The consumer price index (CPI) checked in at a 2.9% year-over-year clip for August. Even “core” CPI – which excludes volatile out food and energy prices – is running at 2.4%.

That’ll make it just about impossible for the Federal Reserve to vary from its “normalization” campaign.

So, it’ll be raising interest rates at the same time growth here and abroad is about to weaken.

That means we’re on course for the worst of all economic conditions: stagflation.

Momentum of Global Trade graph

The time bomb is indeed ticking; it’s a matter of “when” it blows. Yet no one in the White House cares to hear it.

They’re too busy preparing press briefings on the difference between Barry’s economy (“Sad!”) and the Donald’s economy (“The Greatest Ever!”).

The truth is they’re the same thing.
And they’re both terrible for Main Street.

The Donald and the GOP want to you to remember that tax cut, the one that gave us this a glorious quarter of 4% gross domestic product (GDP) growth, the one that’ll pay for itself…

That latter proposition defies any kind of rational fiscal math at today’s exceedingly low point on the vaunted Laffer Curve.

To pay for itself, the tax cut would have to generate $6 of incremental GDP for every dollar of revenue loss. That’s not remotely in the ball park.

About 80% of the corporate cut is going into buybacks and dividends. That’ll add virtually nothing to near-term growth.

It’s really a deficit-financed income transfer to the top 1% and 10%, who own 45% and 85%, respectively, of corporate equities.

Of course, the average marginal rate cut on the individual side was about two or three percentage points.

Whether you give or take hardly matters. It’s not enough to Main Street into paroxysms of overtime and enterprise.

The only impact of the tax cut to date is a pure Keynesian boost to household spending. It’s not permanent growth. It’s borrowed from the future, courtesy of Uncle Sam’s credit card.

And it probably accounted for a full percentage point of that second-quarter GDP gain.

Back in the day, true supply-siders derided that kind of Keynesian transfer and ridiculed Jimmy Carter’s $50-per-person rebate.

Now, a purportedly Republican president does the same thing and a chorus of geriatrics pining for their own Reagan sings in praise of what’s really statist economic policy…

A year ago, the net public debt was $19.78 trillion. Today, it’s $21.47 trillion.

That’s a nearly 9% increase during months 98 through 110 of the softest but second-longest recovery on record.

We are less than nine months shy of breaking the all-time endurance record. But it’ll always be weak, until it dies.

Indeed, the next recession will trigger an epic calamity.

All the Donald’s men?

They have no idea what they’ve set in motion.

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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.MORE FROM AUTHOR