From immigration and the border wall to voter fraud and eliminating the FHA mortgage insurance premium cut, the first few days of Trump’s administration have been chalk full of announcements. Yet for markets, the trillion dollar question remains: what will Trump’s promised tax reform and stimulus packages look like and when will they arrive?
Enjoy The Sounding Line? Click here to subscribe for free.
Here to pour some cold water on expectations for the quick implementation of those plans is David Stockman, former US Representative and Director of the Office of Management and Budget under President Ronald Reagan. Speaking with Fox Business News, Stockman dismissed the idea outright that promised tax cuts and stimulus spending are imminent, noting “The idea that Donald Trump is the second coming of Ronald Reagan has gotten in the mix. Wall Street has priced it in. It’s just completely wrong… We are in a diametrically different position. In 1980 the public debt was $930 billion, 30% of GDP. There was huge running room and open balance sheet for the accidental Keynesian stimulus that resulted from the tax cuts and the defense increase and the massive deficit. Ronald Reagan actually increased the public debt by $1.8 trillion or two times more than had been generated by the first 39 presidents and the first 190 years of our history. Today we have used all that up. We are at $20 trillion of debt, 105% of GDP.”
He continues “What people don’t understand is that the base case forecast (for the Federal Debt projections) is such a rosy scenario that they are going to need the reflow, the extra economic growth (produced by the tax cuts) to get back to where they started. In other words the CBO baseline says there will be no recession through 2026… That’s 206 months. The longest one we’ve ever had was 100 months or so in the 1990s under a much better circumstances… On March 15th a stink-bomb explodes which is this holiday on the debt ceiling. There has been no debt ceiling since October 2015. It becomes frozen in on that date at whatever level we are at. Probably $20 trillion plus… They will be in a debt ceiling crisis by June and all of this legislation is going to be backed up: the infrastructure the corporate tax reform…”
Stockman goes on to emphasize and detail his belief that instead of tax cuts and stimulus the US is more likely to get a ‘fiscal bloodbath’.
The interview is broken into two parts. Enjoy below:
Would you like to be notified when we publish a new article on The Sounding Line? Click here to subscribe for free.
