Washington’s Fiscal Hypocrisy Is Too Rich for Words

You have to love it when one of Donald Trump’s wild pitches outrages the Beltway hypocrites. But his talk about negotiating a discount on the federal debt was priceless…

As soon as the unschooled Trump mentioned out loud what is already the official policy of the U.S. government, a Beltway chorus of fiscal home wreckers began screaming like banshees about the sanctity of Uncle Sam’s credit promises.

Let’s see. For 89 months now, the Federal Reserve has pounded interest rates to the zero bound because come hell or high water, the U.S. economy must have 2% inflation in order to grow and prosper.

Other than a handful of congressional rubes from flyover country, there’s hardly a Washington operative from either party who has questioned it. No one questions the appropriateness or effectiveness, let alone the sanity, of Bernanke-Yellen’s 2% inflation target.

But let’s say the Fed hits its sacred 2% inflation targets. That means in 30 years, investors would get back 54.5 cents in inflation-adjusted money per dollar of principalon 30-year Treasury bonds.

If that’s not default, it’s surely a deeper “discount” than even The Donald had in mind while jabbering to CNBC about his years as the King of Debt.

In fact, it’s nothing less than a grand policy scheme of monetary default!

But since The Donald had the gall to broach the topic — whether by accident or by purpose — the spendthrifts of the imperial city are now scrambling to smother us in a verbal blanket of phony fiscal rectitude.

And the scribblers and bloviators in the mainstream media are blabbing their statist fiscal hypocrisy.According to them, everything that has been done in the imperial city these last several decades should have been done. Certainly, they don’t think there’s any fiscal crisis that might warrant radical ideas like those offered by Trump.

But in the final analysis, the Beltway crowd and their cheerleaders in the mainstream media who peddle endless debt are practically guaranteeing eventual default. It’s just that Trump’s way is more honest.

Below, I really show you why Washington’s fiscal hypocrisy is “too rich for words.”

The D.C. establishment and the mainstream media would have you believe that Obama, the Fed and the Congress actually saved the country from Great Depression 2.0 in 2008–2009.

Since then, they want you to think, we’ve been marching resolutely toward economic recovery and fiscal stabilization.

No, not even close. There has been no meaningful economic recovery and the fiscal condition of the nation is frightful.

As to the former, there are still fewer full-time, full pay “breadwinner” jobs than before the crisis. Likewise, the median household’s real income is still far lower than when the previous Clinton left the White House In January 2001.

But among all the beltway chatter, nothing is more grating than the economic policy architects of the Obama White House taking to the pages of Politico to scold Trump about fiscal responsibility.

These people have no shame. And among them, there are few Washington apparatchiks more culpable than Gene Sperling, who headed Obama’s economic policy council.

Between December 2008 and the present, the public debt exploded from $10.7 trillion to $19.4 trillion. That means that on Obama’s watch, and with Sperling’s presumptive advice, new public debt was issued equal to 80% of the total debt created during the entire prior 220 years of the republic and the tenure of 43 presidents!

That’s right. The Obama White House has indulged in fiscal profligacy like never before. Yet this cat has the audacity to unload a self-righteous sermon on the sanctity of Washington’s credit:

… [Trump has no] sense of the economic and historical importance of America maintaining an iron-clad commitment to stand by its word on our national debt… U.S. Treasury obligations are the least risky financial asset on the planet and the benchmark against which the price of all other financial assets is set… [not].even the slightest awareness from Trump that he that he might be playing with economic fire because if Treasuries were seen as no longer risk-free that would shake to its very foundations literally the core assumption of global financial markets, meaning that the interest rate on every other financial asset — mortgages, car loans, credit for businesses large and small — could go up perhaps by a lot.

Well now. Has Sperling and his ilk ever considered how high interest rates might actually be without the massive bond market fraud carried out by the Fed and the rest of the world’s central banks?

Even the supposedly economically ignorant types among us, apparently Donald Trump included, know that neither Washington, the IMF or the G-20 has repealed the law of supply and demand. Nor has the CIA yet classified as a state secret the amount of sovereign debt and other financial assets that the central banks of the world have vacuumed-up in the name of monetary “stimulus” over the past two decades.

The fact is, about $19 trillion — including more than half of the publicly traded U.S. Treasury securities —has been sequestered in central bank vaults since the mid-1990s. All that debt would have otherwise massively burdened the world’s limited supply of real savings, thereby causing interest rates to soar. Instead, it was made to disappear from the market circulation by monetary authorities hitting the “buy” key on their digital printing presses.

And the Bush/Obama enabling of this giant backdoor form of default on honest debt by the appointment of avowed Keynesian money printers to the Fed isn’t the half of it. Whenever the small number of fiscally responsible congressmen left on Capitol Hill have tried to stop the government spending machine by refusing to raise the Federal debt ceiling, their beltway bettors whacked them. They’ve cried “full faith and credit”, knowing that the Fed and its front-running Wall Street punters would buy-up the flood of new Treasury paper.

In this vein, Sperling recommended that Trump get himself educated by attending “Hamilton” next time he visits Broadway. He gibbers about how “generations of Americans have benefited from a historical commitment started by Alexander Hamilton to ensure the full faith and credit of the U.S. is rock solid”.

He then lobbed in a self-justifying stink bomb by suggesting Trump completely lacks the wisdom and courage displayed by the Obama White House when it stared down the 2011 debt ceiling challenge of GOP backbenchers. Said Obama’s former chief fiscal strategist:

Imagine if we were in the middle of another debt limit stalemate like we had in 2011 (when I was watching from the White House, as director of the National Economic Council) and a President Trump told the world — or repeated to the world — that since the budget turmoil might be making U.S. debt looked shaky, he was open to buying back debt at a discount and was instructing his secretary of the Treasury to consider such options?

What if he then went on for days confusing markets as to his true intentions while dropping lines about being the “King of Debt,” “playing poker” or “printing money”? Does anyone doubt that even without any congressional action such Trumpisms could lead to a global panic with unknown economic harm to the global economy and the long-term economic reputation of the United States?

Well, here’s what really happened. Roughly 80% of Federal spending consists of transfer payments, debt service and other essentially locked-in commitments under law. The debt ceiling is the only frail reed by which the unstoppable expansion of this fiscal doomsday machine can be arrested.

So when the “full faith and credit” chest-thumpers on both ends of Pennsylvania Avenue quashed the backbench uprising in August 2011, they insured that Washington’s actual march toward default would continue unabated.

In fact, total government transfer benefits have grown from $1 trillion per year at the turn of the century to $2.7 trillion at present. Even then, the baby boom bulge driving this budget breakout is just getting up its demographic head of steam. During the next 15 years the entitlement tsunami will truly become a fiscal doomsday machine.

So the Sperlings of the beltway have been harrumphing about full faith and credit and the sanctity of the humongous debts that they are piling on to generations born and unborn. But the doomsday machine has been permitted to run unmolested by Washington’s supposed fiscal watchmen.

Since the turn of the century, government transfer payments have been growing at approximately 2X the rate of wage and salary growth. Just how long do this geniuses think this trend can be maintained?

But not to worry. We will grow our way out of it. Imperial Washington’s official fiscal scorekeeper, the Congressional Budget Office (CBO), has deemed in its Keynesian wisdom that the business cycle has officially been vanquished and that the U.S. economy will enter the nirvana of Full-Employment at Potential GDP sometime next year.

Not only that. It will remain there for time ever more, world without end. By the time we get to 2026 we will have had 207 straight months without a recession, according to the CBO.

Yes, that’s what the full faith and credit brigade swears by. But even then, the budget deficit will hit $1.3 trillion and 5% of GDP by 2026 under current policy.

Imagine what will happen in the real world when the Red Ponzi finally crumbles in China and the global economy plunges into a prolonged deflationary recession?

Needless to say, Sperling has left the White House and is now out humping for Hillary, who promises to lower the Medicare age to 50 years and distribute a good amount of other free stuff from Bernie’s playbook.

The fiscal menace at loose in the land long pre-dated Donald Trump. In fact, it’s precisely apparatchiks like Sperling and pols like Hillary whose policies have paved the way for his improbable rise.

And just in the nick of time.

Regards,

David Stockman
for The Daily Reckoning

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