David Stockman: Prepare for Fiscal Bloodbath, Not Fiscal Stimulus

David Stockman joined Fox Business and Neil Cavuto to discuss Trump’s tax reform plan, the fiscal dilemmas facing Congress and exactly what strategy must be taken regardless of talk about fiscal stimulus looming.

“I have lots of hope and zero faith.”

“Somehow the idea that Donald Trump is the second coming of Ronald Reagan has gotten in the mix. Wall Street has priced it in. It is just completely wrong.”

David Stockman served within the Ronald Reagan administration as the director of the Office of Management and Budget from 1981-1985 and is a two term Congressman.  Stockman is also the recent bestselling author of Trumped! His book hits at the heart of exactly what the incoming administration must do in order to correct the dangerous direction toward financial turmoil.

Cavuto then pressed on fiscal stimulus and the Reagan approach, where Stockman replied, “We are not going to get big tax cuts. We are in a diametrically different position. In 1980 the public debt was $930 billion, that was 30% of GDP. There was huge running room and an open balance sheet for the accidental Keynesian stimulus. This resulted from the tax cuts and the defense increase, along with a massive deficit.”

[Ed. Note: To see exactly what this former Reagan insider has to say about Trump and specifically what he believes must be done, David Stockman is sending out a copy of his book Trumped! A Nation on the Brink of Ruin… And How to Bring It Back out to any American willing to listen. To learn how to get your free copy CLICK HERE.]

“Ronald Reagan actually increased the public debt by $1.8 trillion, or two times more than had been generated by the first 39 presidents.”

“Today we have used that all up. We are at $20 trillion of debt.”

“The base case forecast is so optimistic, such a rosy scenario, that they are going to need reflow of extra economic growth to get back to where they started. The Congressional Budget Office (CBO) baseline says there will be no recession through 2026. That is 206 months. The longest one we have ever had is about 100 months, under a much better circumstance.”

“If you program in sober economics, lay on some tax cuts that are in some way paid for, you will get a better economy over time.”

When asked by Cavuto about the wisdom of tax cuts and adding to deficits, which Mitch McConnell has even posed as a mistake, Stockman notes, “Now when he says deficit neutral he means: well we will put in dynamic feedback. But they have no room to grow.”

“On March 15 a stink bomb explodes. That is the holiday on the debt ceiling. There has been no debt ceiling since October, 2015. It becomes frozen in on that day on whatever level we are at. Congress will be in a debt ceiling crisis by June.  All of this legislation is going to be backed up including the infrastructure, the corporate tax reform.”

“I am for a corporate tax reform… but it has to be paid for. It can’t be added to the deficit.”

When questioned on the tax reform proposals in leu of fiscal stimulus that former Treasury Secretary John Snow put forward that said ‘tax cuts have to be paid for’ Stockman relayed, “I believe spending cuts are far more important. If we are going to have a large tax reform it needs to pay for itself with a broader base.

“The point I am making is, we don’t have an open runway. We don’t have a clean balance sheet to try some huge experiment along with an unfunded tax increase that will drive us deeper. Why? There is $800 billion in new borrowing this year alone. That is built in before one dime of Trump reform, infrastructure, etc takes place. It is $10 or $12 trillion over the next decade.”

“I think we are going to have a fiscal bloodbath, not a fiscal stimulus. We are going to have a debt ceiling crisis in the next year. I don’t think the Trump administration is halfway prepared for the monsters that are in the deep.”

To see the full interview with David Stockman click here.

Regards,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning