Stockman: Wall St is Misreading Trump - Fiscal Crisis Ahead

[Ed. Note: To see exactly what this former Reagan insider has to say about Trump and the fiscal threats of the debt ceiling, David Stockman is sending out a copy of his book Trumped! A Nation on the Brink of Ruin… And How to Bring It Back to any American willing to listen – before it is too late. To learn how to get your free copy CLICK HERE.]

David Stockman joined CNBC to offer a stark warning for investors that continue to follow Wall Street on a path of misreading Trump’s policies while Washington is headed toward a fiscal bloodbath.

Stockman started out his fiscal warning saying, “I think that Wall Street is totally misreading Washington. It is pricing in a fantasy about a Trump stimulus that simply is not going to happen. There will be no big tax cut, there will be no $15 or $20 a share reduction in the corporate rate. Infrastructure stimulus [isn’t going to happen].”

The host then prompted how Stockman knew this to which he pushed, “we are heading into a debt ceiling trap that will grind the whole system to a halt by June or July. People are forgetting that we’ve been on a debt ceiling holiday. That holiday ends on March 15.”

Stockman Fiscal Bloodbath on Wall Street

David Stockman is the former Budget Director under President Ronald Reagan. He also served in Congress where he was a two-term Congressman representing Michigan. Following his service in the U.S government, Stockman went on to work on Wall Street. Currently he is the bestselling author of Trumped! A Nation on the Brink… And How to Bring It Back – learn how to get your FREE copy – CLICK HERE.

The CNBC host then posed that this was not a new scenario to Donald Trump. David Stockman then took the point to task noting that, “This is totally new to Donald Trump. He tweeted last weekend that he had reduced the national debt by $12 billion. It is actually up $187 billion in the first 35 days that he has been in office. The cash on the Treasury’s balance sheet, and this is the key point, was $382 billion the day he was sworn in – as of last Friday it hit $178 billion and has bled $200 billion in cash.”

“That’s one fifth of a trillion while he didn’t even have his economic team in place. When they get to March 15 and the debt ceiling freezes at $20 trillion, they’ll have maybe $200 billion of cash. That is being run out at a rate of $3-5 billion a day. By June it will be gone. There is no pathway to a majority in the House or Senate to pass a debt ceiling increase in the trillions in order to make any of this stuff possible.”

The Art of the Deal – Myth vs Fiscal Reality

When asked about whether Trump’s negotiation tactic, The Art of the Deal, is presenting a different way of running the system than before Stockman did not hold back. He pushed, “[Trump might be doing that] But that makes it even more dangerous and reckless. This isn’t an Atlantic City Casino and the junk bond market’s of 1991. This is the big time – this is $20 trillion of debt. This is an environment with a House, Republican majority that doesn’t exist. That’s a delusion. This is an environment of a gang of factions. They’re already beginning to splinter and fracture as a result of the Obamacare plan of “repeal and replace.”

“They won’t even get to tax reform before the debt crisis hits. We will have a government shutdown. It is totally unexpected, unpriced in, as they say by Wall Street. It will spook everybody. Trump is so reckless that this could go on for days, weeks or months in a way that we’ve never seen before. The 2011 with Obama will be a Sunday school picnic compared to what is likely coming down the pike.”

Stockman Fiscal Bloodbath

Following the President’s speech to Congress the Dow Jones along with the S&P 500 jumped in a bullish tone following the Trump policy agenda. Stockman took the speech through an entirely different approach. He noted, “The Joint Session of Congress speech from last Tuesday night was irrelevant. It was the most fiscally irresponsible speech given by a President since LBJ talked about “guns and butter.” How can he possibly raise defense by $50 billion, more for Veterans, a trillion dollar or more for infrastructure, medical credits and all of the rest while cutting taxes by $3-5 trillion? This is complete madness.”

Trump and Rising Markets

When asked by the CNBC host about whether it was good policy for Donald Trump to continue to take credit for the rise in the stock market Stockman took the President’s mistake to task. “I think he’ll rue the day he took credit. You should never predicate what you’re trying to do for the long-run, as well as intended as he might be, for what the robo-machines are doing on Wall Street. The robo-machines can read words and when Trump speaks, they hit the “buy” key. They can’t read the “tea leaves” in Washington because it is far more complex and opaque than the stimulus the machines are used to.”

He was then asked about the 2012-2013 and the fiscal cliff worries and how they managed to raise the debt ceiling – but why a now Republican lead Congress and White House will not be able to be solve the debt dilemma? Stockman doubled down on his claim noting, “We now have a Republican president and a Republican Congress that is not about to start a bipartisan negotiation, like Obama did with former Speaker of the House Boehner. The reason that the Freedom Caucus exists today, and that the Tea Party is still half of the back bench, is because they believe they were sold out time after time. That is how they passed the debt ceiling.”

“Now Trump has declared war on the Democrats, the border, immigrants. The Democrats are not going to deliver any votes, in my view, for a debt ceiling increase unless he throws in the towel on Obamacare and border control. The politics today are three times more fragile than they were in any of the years mentioned with the fiscal cliff.”

When asked on his belief that the markets would much lower and to what extent he responded, “There is a massive fantasy built in that an economy 92 months into an expansion, almost the longest in history, can suddenly get up on its hind-legs and start growing again. Profits are still down. In the last 12 months they’re still about 10-12% below the peak in September 2014. I see nothing to reaccelerate the economy or profits and I see a huge bloodbath or a fiscal stalemate that will remove any of the stimulus that traders are expecting.”

To listen in on the full interview with David Stockman on the fiscal bloodbath he believes is headed to Washington featured on CNBC, CLICK HERE. If you want to explore David Stockman’s prescription for exactly what Trump and Washington most do to bring America back from the fiscal brink – get your FREE copy of his bestselling book TRUMPED! CLICK HERE.


Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning