sell! sell! sell!

[PatsFan1283]

Still think it is too early to say what will happen.

A lot of House/Senate GOP could block the spending and a lot of Dems might just want to not work with him. Trump is more popular than all of them though and it won't be good for their popularity.

All these guys have the same economic advisors that tell them you have to deficit spend or else there is going to be a contraction though.

The Keynesians always find something to spend on. "Our infrastructure is crumbling" "The soviets are going to kill us" "the war on terror" "We need an ownership society"

Some of these had merit, some didn't. And if the ones that had merit didn't exist, they would've just found other ways to spend.

Going to be an interesting time.

 

[tiznow]

Nother example of an empire in collapse/wastefully spending just to spend..

the below article is old.. just reported today that it broke down in Panama Canal.. http://www.popularmechanics.com/military/navy-ships/a24015/zumwalt-breakdown-panama-canal/

--------

The New $3B USS Zumwalt Is a Stealthy Oddity That May Already Be a Relic – WIRED | WIRED

The completed its first at-sea tests this week, and its captain, who really is named James Kirk, couldn’t be happier. “For the crew and all those involved in designing, building, and readying this fantastic ship, this is a huge milestone,” he says. Bath Iron Works employee Kelley Campana, with tears in her eyes, told the The Telegraph, “It looks like the future.”
Maybe so. But the Zumwalt, named for Navy Admiral Elmo Zumwalt, may already be a relic.
The Zumwalt-class destroyer program started in the early 1990s and has been a problem child ever since. At first, the Navy planned to purchase 32 of the stealth vessels. Then it said it would buy seven. Then three. Now, it may buy just two. After decades and billions of dollars spent, the DoD may instead choose an updated version of the Arleigh-Burke DDG-51 destroyer, a model that entered service in 1991.
The destroyer USS Arleigh-Burke (DDG-51) returns home from deployment in 2012. Getty ImagesWhat drew the Navy to a design it may well scrap? The Zumwalt’s got a lot going for it. It’s made for cruising coastal waters and firing on hostile land targets, filling a role the Navy lost when it retired the Iowa-class battleships in the early 1990s. It’s bigger, stronger, and angrier than the stalwart DDG-51, which is primarily a defense vessel. According to National Defense magazine, the Zumwalt’s “advanced gun system” can hit targets 72 miles away. They can continue firing as more ammunition is brought aboard, a feature the Navy calls an “infinite magazine.”

That’s right. Infinite magazine. The Zumwalt requires a smaller crew compared to other destroyers, which makes it cheaper to run. The most powerful destroyer in the Navy’s history, it produces 78 megawatts of energy, enough to power about 10,000 homes. Some of that power goes to weapons like the electromagnetic railgun, which uses electricity to launch projectiles at 4,500 mph.
So why not build a few dozen of these monsters? Two big reasons. The first, not surprisingly, is cost. Zumwalt-class destroyers cost about $3 billion a pop—compared to $2 billion for a DDG-51. The second is more alarming: There are serious doubts about the ships’ seaworthiness. “On the DDG-1000 [Zumwalt-class], with the waves coming at you from behind, when a ship pitches down, it can lose transverse stability as the stern comes out of the water—and basically roll over,” Ken Brower, a civilian architect with decades of naval experience, said in 2007.
That concern stems from the shape of the ship, which looks more like Minsk’s Belarusian State Polytechnic Institutethan a warship. It features what’s called a tumblehome hull, with flat, inward sloping sides that narrow above the waterline. The more traditional flared hull is broad at the bottom, narrower in the middle, then wider again at the top. The tumblehome’s bow slices through waves and minimizes the wake. More importantly, the hull’s sharp angles confuse radar systems into thinking they’re looking at a much smaller boat.
That stealth may come at the cost of safety, though: Eight current and former Navy officers have publicly doubted the ship’s stability, according to Defense News. And a 2007 report, “Dynamic Stability of Flared and Tumblehome Hull Forms in Waves”, presented at the 9th International Ship Stability Workshop in Germany, concluded that “Increasing wave heights … lead to drastic reductions in the stability of the tumblehome topside hull form.” Meanwhile, “even in steep waves, with large initial heel angles and roll rates, the flared topside had very few instance of capsize.”
The Navy has always defended the Zumwault-class design, noting that any new technology is subject to intense scrutiny, especially by an old institution like the US military. It’s promised all sorts of stability tests. And despite the military’s reputation for overspending on unnecessary gear, spending that kind of money on what may well be flawed design is something even conspiracy theorists couldn’t explain.
But even the Navy has its doubts. In 2010, Admiral Gary Roughead, chief of naval operations, told the House Armed Services Committee that based on a “radar/hull study,” the Navy decided to integrate a new radar system into the older DDG-52 ships, not the Zumwalt-class, because it would be cheaper. Shortly after that 2009 radar/hull study was published, the Navy cut its Zumwalt order to three ships.
The evidence against continuing the Zumwalt program would seem unimpeachable, except for the fact that the Government Accountability Office has impeached the credibility of a key indictment of the program. “The Radar/Hull Study may not provide a sufficient analytical basis for a decision of this magnitude,” it said in 2012.

Dr. Ben Freeman, a senior national security adviser for the Third Way think tank, has said the Navy’s 2009 report was manipulated. He points to an article in Aviation Week in which a “former high-ranking Navy officer” familiar with the classified Radar/Hull study said, “Some pieces of it got hijacked. People who had an agenda drove the study for a solution.”
The battle amongst special interests in the military is its own story entirely, as that Aviation Week piece makes clear. But the end result of decades of insults against an unprecedented class of destroyers may well mean just two of them enter service. And no matter your position on the seaworthiness of the Zumwalt, the final calculus would seem to rule out its sustainability a long-term program—even if it is suited to future wartime needs.
Just last month, the Congressional Research Service said the Navy could buy more DDG-51s for the same amount of money. It also said the Navy had decided by 2008 or 2009 against using the Zumwalt as the basis for a new class of CG(X) cruisers. “If the Navy had remained committed to that idea, it might have served as a reason for continuing [Zumwalt] procurement.”
At this point, it seems the DDG-51 will win the day, and that chorus of critics—whatever their motivations—has helped usher in the demise of this sneaky behemoth. In the meantime, the one Zumwalt we do have in service will cruise the seas. Let’s just hope it stays upright.

 

[tiznow]

A billionaire is now education secretary i'm sure she'll be keeping the little guys interest in mind just like trump lol

 

[PatsFan1283]

DeVos really accomplished and seems pretty sharp though. Big school choice advocate.

Her father in-law actually owns the Orlando Magic fwiw. The Amway guy.

Which is basically the best MLM racket ever.

 

[tiznow]

Here's how charter schools work out for the have nots.. great news for the billionaires.. gotta keep dumbing down the population..

Free markets and competition sound great on paper the problem is the entire system is so broken and corrupted it makes it even worse.. as billionaires aim to stack more money , buy political favors.. regardless of the casualties along the way..

---------

A Sea of Charter Schools in Detroit Leaves Students Adrift - The New York Times

A Sea of Charter Schools in Detroit Leaves Students Adrift - The New York Times:

A Sea of Charter Schools in Detroit Leaves Students Adrift

DETROIT — On the face of it, Ana Rivera could have had almost any choice when it came to educating her two sons. For all the abandoned buildings and burned-down houses in her neighborhood in the southwest part of this city, national charter school companies had seen a market and were setting up shop within blocks of each other, making it easier to find a charter school than to buy a carton of milk.
But hers became the story of public education in a city grasping for its comeback: lots of choice, with no good choice.
She enrolled her older son, Damian, at the charter school across from her house, where she could watch him walk into the building. He got all A’s and said he wanted to be an engineer. But the summer before seventh grade, he found himself in the back of a classroom at a science program at the University of Michigan, struggling to keep up with students from Detroit Public Schools, known as the worst urban district in the nation. They knew the human body is made up of many cells; he had never learned that.
When his school stopped assigning homework, Ms. Rivera tried enrolling Damian at other charters, but the deadlines were past, the applications onerous. Finally, she found him a scholarship at a Catholic school, where he struggled to rise above D’s all year. “He doesn’t want to hear the word engineering,” she said.
Michigan leapt at the promise of charter schools 23 years ago, betting big that choice and competition would improve public schools. It got competition, and chaos.
Detroit schools have long been in decline academically and financially. But over the past five years, divisive politics and educational ideology and a scramble for money have combined to produced a public education fiasco that is perhaps unparalleled in the United States.
While the idea was to foster academic competition, the unchecked growth of charters has created a glut of schools competing for some of the nation’s poorest students, enticing them to enroll with cash bonuses, laptops, raffle tickets for iPads and bicycles. Leaders of charter and traditional schools alike say they are being cannibalized, fighting so hard over students and the limited public dollars that follow them that no one thrives.
Detroit now has a bigger share of students in charters than any American city except New Orleans, which turned almost all its schools into charters after Hurricane Katrina. But half the charters perform only as well, or worse than, Detroit’s traditional public schools.
“The point was to raise all schools,” said Scott Romney, a lawyer and board member of New Detroit, a civic group formed after the 1967 race riots here. “Instead, we’ve had a total and complete collapse of education in this city.”

 

[PatsFan1283]

It's not going to be a cure all overnight but Charter's definitely have some upside compared to old union, no accountability model.

I haven't read up on the New Orleans situation in awhile, but pretty sure they have had a lot more success than Detroit has.

 

[tiznow]

In the end like most things regardless of what system you choose everything is now so corrupted and run by sociopaths that all choices will be bad for the have nots..

personal responsibility for your own children and not depending on schools is only way for the have nots to move outta the gutter generationally.. and it's nearly impossible to do when the parent is poorly educated to begin with.. or working two jobs..or split familiy... or whatever

A lot of it cultural too.. we need leaders that have the balls to stand up and say the schools are not your babysitter.. take a active role in your child's education etc.. Education in this county will continue to go in the gutter until parents attitudes change..

asians tend to succeed where their aren't billions of them in same country to compete with cause their parents take an extremely active role in their education.. msft been killing it since they rid of mba ballmer..

 

[PatsFan1283]

Not sure how you feel about Schiff, obviously he sensationalizes a bit but this was pretty measured and accurate. Talking about differences between now and early 80's as well as the pickle we're in.

 

[CHOPTALK]

Amazing how fast the world is changing .
Changing so fast the powers that be are not prepared.

Exciting and scary all at the same time

 

[eek.]

The Navy's New Stealth Destroyer Breaks Down in the Panama Canal

The Royal Navy is also having problems with this new propulsion system, it's basically what industry would call a vfd, a variable frequency drive, but on a gigantic scale
Even on a basic lathe a vfd is fabby at higher power speeds but when it has to produce high torque lower power/speed stuff it starts to struggle and a mechanical system is vastly superior to electronic wizardry

Once they figure out the niggles it will be a good system but it won't be easy, especially in any heavy seas or high temperature zones, electricity is unreliable stuff when it's pushed to the limits of its loading envelope

 

[eek.]

I personally see a high inflation/interest rate system as our only way out because it makes everyone work hard to keep up and everyone from the top to the bottom is affected

There are no free rides anymore and there's a lot of carnage along the way but we're heading for financial and political armageddon in any case if we don't do something soon.

The fittest leanest hardest working will survive and a whole buncha stuff will go up along the way and the libs are simply too chickenshit and too comfy to go there

So it's up to Trumpy boy now, we'll see if he has the cahoonas for it, (Margaret Thatcher did)

 

[tiznow]

I personally see a high inflation/interest rate system as our only way out because it makes everyone work hard to keep up and everyone from the top to the bottom is affected

There are no free rides anymore and there's a lot of carnage along the way but we're heading for financial and political armageddon in any case if we don't do something soon.

The fittest leanest hardest working will survive and a whole buncha stuff will go up along the way and the libs are simply too chickenshit and too comfy to go there

So it's up to Trumpy boy now, we'll see if he has the cahoonas for it, (Margaret Thatcher did)

They can't raise rates (much.. maybe a few tiny hikes coming but can't do much more) ...interest payments would suck up a huge chunk of government expenditures

---------

[h=1]Can the Fed Raise Interest Rates?[/h] I chose my title carefully. I will focus on what is possible for the U.S. central bank to achieve rather than what they might want to accomplish or may attempt to effect. I examine three possible senses in which the Federal Reserve could not raise interest rates, or would not be able to raise them to the extent they wish.
First, the Fed might face financial headwinds working against attempts to raise short-term, domestic interest rates. Second, there might be undesirable consequences to raising these interest rates that render it practically impossible to pursue higher rates. Third, it might be technically impossible to raise rates.
The major financial headwinds are the actions of other central banks. There are now more than 20 central banks in the world that have instituted negative short-term interest rates (including all of the Eurozone). The trend has been for more central banks to go negative, and for those already in negative rate territory to go deeper. In some of these countries, yields are negative out to 10 years and even beyond.
Were the Fed to attempt to hike short-term interest rates another 25 basis points, it would be moving against the tide of global central bank policies. The European Central Bank’s overnight deposit rate is -40 basis points. The Fed is paying 50 basis points on reserves, so that is a positive spread of 90 basis points. Were the Fed to raise the rate to 75 basis points, there would be a positive spread of 115 basis points.
In the near term, a Fed rate hike would attract capital flows into dollar assets. That would put upward pressure on the value of the U.S. dollar and off-setting downward pressure on short-term U.S. interest rates. It is difficult to go up when the world is headed down.
The first case transitions into the second case of undesirable consequences. A higher dollar is normally viewed as undesirable because it stimulates imports and slows U.S. exports to world markets. With U.S. economic growth hovering around a 1-percent annual rate, there is little appetite among policy makers for growth-retarding policies. So it would be practically impossible, even though conceptually possible, for Fed officials to raise interest rates. Some might translate that as politically impossible even though economically feasible.
The third case is perhaps the most interesting because it arises out of a novel factor. In the past, the Fed affected short-term interest rates by buying and selling short-term Treasury obligations. Its target was the federal funds rate, the interest rate paid by banks to borrow reserves from other banks. To raise that target rate, the Fed would sell Treasury bills (short-term Treasury debt). That would raise other short-term interest rates, and soon the fed funds rate as banks were stimulated to borrow to earn higher returns.
The problem is that the Fed no longer holds short-term assets on its balance sheet, and has not for some time. It has nothing to sell and no ability to directly impact short-term interest rates. It faces a technical problem in raising rates. That accounts for its use of interest on reserves and the reverse repo market to raise rates. In December 2015, the Fed raised the interest paid on reserves from 25 to 50 basis points. It also posted an offering rate of 25 basis points on reverse repurchase agreements. The idea was that arbitrage would increase the fed funds rate to a range of 25 to 50 basis points.
The December action had limited success. The fed funds rate did move into the target range and has recently been in a 36-40 basis-point range. In secondary markets, however, interest rates on short-term treasury bills (4 weeks) have traded down close to or even below 25 basis points. They averaged 22 basis points in June and 26 basis points in July. Additionally, the interest rates on 5- and 7-year Treasury inflation protected securities (TIPS) are negative.
There are real questions as to whether further hikes in what are administered (not market) interest rates will move market interest rates as desired. We have no experience on which to base such a forecast.
Further, banks are no longer reserve constrained. They need not borrow from each other to acquire earnings assets, but can lend or invest their excess reserves. In such a world, “announced changes in the federal funds rate therefore have no implications for economic activity, or the rate of inflation” (Jordan 2016: 382). Even if the Fed can change the fed funds rate in that situation, we must question whether it can predictably affect economic activity.
Let us return to the world in which we seem to find ourselves, namely the Fed still has some (perhaps diminished) impact on market interest rates. Fed officials confront an impossibility theorem of their own making, however. They want to hike rates but at no substantial costs. Each time they send signals to financial markets of their intent to do so, however, they create the financial turmoil they are trying to avoid. Asset prices factor in continued low interest rates, as do the many carry trades that bolster these asset prices. As already noted, foreign currency markets are sensitive to even small changes in interest rates.
That is not to say that a rise of 25 basis points by itself will upend financial markets. But, as has been signaled in past statements by Fed officials, there is a planned sequence of rate hikes. The Fed has been stalled since its first increase in December 2015. Another increase will be viewed as a resumption of the planned sequence of hikes. The Fed has held down interest rates at very low levels, near zero for years, and now wants to raise rates with no large economic and financial consequences. That is not possible. Therefore, to answer the question, the Fed cannot raise interest rates.
There is no obvious way out of the corner into which the Fed and other central banks have painted themselves. They tried zero interest rates and large-scale asset purchases to no avail. The global recovery has been weak–for the U.S. perhaps the weakest in modern times. Hewing to their own logic, however, many central banks doubled-down and went negative. The Fed thus far has resisted that course and is even trying to move against the global tide and raise rates. Fed policymakers are still mostly stuck in closed economy thinking. But, so, too, are most advocates of monetary reform. New thinking is needed all around.
______________
Acknowledgement
I thank Walker Todd for his insights.
References
Federal Reserve System H.15 Release – Selected Interest Rates (Weekly), August 8, 2016
Jordan, J. L. (2016) “The New Monetary Framework” Cato Journal 36 (Spring/Summer): 367-83.

 

[tiznow]

Probablity markets saying near 100% chance they hiking 1/4 point in December.. they will do that and see what happens..

global recession hits before they get close to 2% IMO and back to negative/deflation land we go..

fed just trying to give itself some wiggle room for when this bubble bursts..

just to much BAD debt racked up in the past decades.. propping up near term to make our future even worse..no room left to keep digging now that fed isn't sticking to ZIRP.. plus the globalists don't like trump so not gonna allow him and his liberals to wastefully spend trillion on infrastructure to make themselves look good... guess we shall see what happens..

 

[tiznow]

The time for government to debt like crazy on infrastructure is when we have high unemployment and in the middle of a mega recession/depression

not when pretty much everything from stocks to bonds to housing you name it is at historically bubble valuations and you also don't have hoards of bodies to carry out your dreams of debt and spending on infrastructure..

mr. Market will wake up to this reality eventually.. as in 2000 and 2007 markets can get way insane before they go bust..

 

[eek.]

"you can't raise rates! It'll be a disaster!"

You've been predicting armageddon for a while now Tiz, well this is a controlled demolition job to get rid of the weak crap and make the entire financial structure more stable for the longer term

Of course when we say "controlled demolition" there could be some "Collateral Damage" as well

 

[tiznow]

In 2015, the U.S. spent $223 billion, or 6 percent of the federal budget, paying for interest on the debt. In recent years, interest rates have been at historic lows. As they return closer to normal levels, the amount the governmentspends on interest will risesubstantially.

http://www.fixthedebt.org/everything-about-the-debt

us is going Japanese eek no other way now that we've gone this far down this path.. if congress had invested heavily in the middle class/infrastructure.. something of some value when everything went bust.. vs bailing out the banks elite and big corporations .. cutting rates to zero and allowing even more bad debt to grow... it could've different.. but now it is way too late.. too much debt.. interest rate "normalization" is a fairy tale. Interest payments would swallow everything if rates ever got back to 4-5%

 

[tiznow]

The graph below shows the amount of federal debt outstanding over the last 40 years. As can easily be seen, the federal debt exploded upwards with the financial crisis of 2008, and began its meteoric ascent to the over $19 trillion dollars outstanding.

Given its sheer size, if the interest rate on that debt were to rise by even 1%, the annual federal deficit rises by $190 billion. A 2% increase in interest rate levels would up the federal deficit by $380 billion, and if rates were 5% higher, the annual federal deficit rises by $950 billion.

http://danielamerman.com/va/Conflict.html

 

[tiznow]

On the flip side of this.. Donnie somehow gets around the bond markets/people in congress he bashed non stop and who are concerned about debt and gets everything he wants and gets to go on a crazy debt binge .. creating a even massive bubble (time to debt and invest is when things cheap.. not now at historically rich valuations)... I guess we will see..

---------

[h=1]This is the greatest suckers' rally of all time: David Stockman[/h]Brian PriceNovember 23, 2016

The Trump rally raged on this week with all major U.S. indexes hitting record highs, but despite the historic run, David Stockman is doubling down on his call for investors to sell everything.
"This 5 percent eruption is meaningless. It's some robo machine trying to tag new highs," Stockman said Tuesday on CNBC's " Fast Money ," in a dismissal of the S&P 500 rally.
"I see a recession coming down the pike in 2017. The stock market is going to go down and it's going to stay down long and hard because, for the first time in 25 years, there's nothing to bail it out."
This echoed the initial call Stockman made Nov. 3, when he urged investors to sell stocks and bonds before the presidential election.
However, since the Nov. 8 election, the Dow Jones industrial average (Dow Jones Global Indexes: .DJI) has gained 4 percent en route to surpassing 19,000. Additionally, the S&P 500 (INDEX: .SPX)and Nasdaq (NASDAQ: .IXIC) also hit record highs in the same time period, gaining 3 percent and 4 percent, respectively.
Yet Stockman, who was director of the Office of Management and Budget under President Ronald Reagan, reaffirmed that markets are heading for disaster.
"My call stands. Sell the stocks, sell the bonds, get out of the casino," Stockman explained to CNBC in an off-camera interview. "Bonds have already cratered by nearly $2 trillion worldwide and have miles to go. This isn't a rotation into stocks, either. It's the greatest sucker's rally ever."
Stockman, author of "Trumped: A Nation on the Brink of Ruin... And How to Bring It Back," lamented that there will be no Trump stimulus or Reagan-style boom. He further added that he expects "an unprecedented fiscal bloodbath" resulting from the $20 trillion worth of debt that the U.S. currently has on the books.
"This isn't Ronald Reagan with a clean $1 trillion balance sheet and with a fluke GOP and a Southern Democratic coalition that only materialized because he got shot," Stockman said in reference to John Hinkley Jr. attempting to assassinate Reagan in Washington, D.C., in 1981. "Nor is it LBJ in 1965 with a thundering electoral mandate and a massive congressional majority for the Great Society."
On the contrary, Stockman, who initially predicted that Trump would win the election, added that Washington will be in chaos by June. This is because he anticipates ongoing disruptions from the tea party, which Stockman doesn't foresee as allowing additional deficit increases.
Furthermore, Stockman doesn't believe that Trump can pass a bipartisan stimulus plan without capitulating on his promise to repeal and replace Obamacare. Additionally, Stockman cast serious doubt over Trump's ability to enact a meaningful tax cut or to develop a major infrastructure program. If so, Stockman believes that could very well trigger a civil war within the Republican Party.
"So when the recession hits this summer, the Fed will be out of dry powder and fiscal policy will be paralyzed," concluded Stockman. "This time the market will crash and stay crashed."
Given this prediction, Stockman re-emphasized that gold and cash will be king and urged investors to shift their portfolios accordingly. He also recommend shorting the S&P 500 through ETFs such as the SH (NYSE Arca: SH) or the SDS (NYSE Arca: SDS).

 

[tiznow]

Trump is entering office at the complete polar opposite fiscal situation Reagan was in...

------------------

Comparing Trump to Reagan

The election of Donald Trump can be compared in some ways to the election of Ronald Reagan in 1980. There are similarities, but some important differences, which you’ll see in a moment.
First, the main similarity: Ronald Reagan was considered a buffoon, a dope, an actor unfit for the presidency. Many feared he’d also push the nuclear button and start World War III. So many of the things you’ve heard about Trump are exactly what they said about Reagan at the time.
But Reagan came in with a team of advisors and did a lot of things right. He had a lot of help from Paul Volcker, who headed the Fed at the time. That’s something important to bear in mind. It wasn’t just Reagan. It was Reagan and the Fed working together to turn the U.S. economy around. Reagan entered office when the economy was sunk in one of the worst recessions since World War II.
Reagan had his recession in 1981 going into 1982. I always thought it was genius of Ronald Reagan to his recession over early. Most presidents do not make it through their terms without a recession. If they succeed in delaying it initially, they usually end up having it late in their terms at the worst possible time. Once Reagan’s early recession was over, the economy grew for seven straight years.
For over three years, from 1983 to 1986, growth in the United States was 16%. That’s real growth, not nominal growth. There wasn’t any inflation to dilute that number. In contrast, average annual growth in the United States has been barely 2% since 2009. That’s almost eight years. Yet for three years in the early stage of the Reagan administration, growth averaged over 5%.
2% versus 5% might not sound dramatic. But over time it is a dramatic difference of orders of magnitude. An economy growing at 5%, or even 4%, if compounded, will be twice as rich in 20 years as the economy growing at 2%. It’s a major difference.
Now, let’s step back and talk a little bit about something you’re not going to hear anywhere else. They speak to some important differences between the economy of Ronald Reagan and the economy Donald Trump will inherit.
When Ronald Reagan was sworn in, interest rates were 20%. They were as high as they could possibly be. They had nowhere to go but down. They weren’t going to go to 30%. The country would have gone belly up and declared bankruptcy.
Now, as we prepare for 2017, Trump will be entering the White House under very different circumstances. Interest rates are close to zero. They have nowhere to go but up.
Reagan had a major tailwind in the form of potentially lower interest rates. Trump is going to have a major headwind in terms of potentially higher interest rates. The inflation picture is also quite different.
When Reagan entered office, inflation was running at 13%. By 1984, Volcker had reduced it to around 4%. That was a massive disinflation
Stocks and bonds both went up. Stocks were going up because of real growth. Bonds were going up because interest rates were coming down and inflation was coming down. Now, Trump could have the opposite situation. Trump could have a collapsing bond market and stocks could run out of steam.
The other major difference between then and now, and this is one that I haven’t heard anyone mention, is that when Reagan was sworn in, the U.S. debt-to-GDP ratio was 35%, close to the lowest it had been since the end of World War II. At the end of World War II, the U.S. debt-to-GDP ratio was 100%. By the ‘70s, it had come down to around 30%. It had gone up slightly to 34% when Reagan was sworn in.
Reagan therefore had enormous fiscal space. He had enormous headroom to increase the debt-to-GDP ratio without threatening the financial solvency of the United States, which he took advantage of. When Reagan left office, the debt-to-GDP ratio was 50%. So he added 15 percentage points to the debt-to-GDP ratio. If you take 15, divide it by 35, you can see that he increased the debt-to-GDP ratio by 40%.
Now, what did Reagan spend the money on? Winning the Cold War. Reagan basically outspent the Russians because they couldn’t match us. By the end of the decade, the Cold War was over. Reagan also instituted massive tax cuts. That was the other contributor to deficits. Paul Krugman and others to this day criticize Reagan for running up the debt.
Now, here’s the problem:
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The debt-to-GDP ratio today is 100%, back to where we were at the end of World War II. When Obama entered office, the national debt was about 10 trillion. Today, it’s about 20 trillion, and growing. Obama piled 10 trillion of new debt on top of the old, so the debt-to-GDP ratio is back up to 100%.
What is Trump going to do? He wants to be a big spender. He wants tax cuts, more spending on defense, spending on the wall, infrastructure spending, airports, roads, bridges, tunnels, railroads, et cetera, and less regulation. He wants to be Ronald Reagan. But unfortunately for Trump, Obama has tied his hands.
Trump will not have the fiscal space Reagan had. The U.S. is getting uncomfortably close to where Italy, Spain, and Greece, and Japan and some of these other potentially bankrupt countries are. The point being that Trump faces enormous constraints that Ronald Reagan did not have.
Trump won’t have falling interest rates like Reagan had. He’s going to face increasing interest rates instead. Inflation won’t be falling dramatically. He’s facing the possibility of increasing inflation, which means higher food prices and higher prices at the pump. He doesn’t have a low debt-to-GDP ratio like the 34% Reagan inherited. He’s actually inheriting a high debt-to-GDP ratio of 100%.
Trump is going to try to run the Reagan playbook in a non-Reagan environment. That plan could immediately hit a wall. It could result in something like stagflation, where we get the inflation from spending and deficits, but you don’t get the growth. That’s because after eight years and $10 trillion, we’re facing the reality of diminishing marginal returns. That’s when each new dollar of stimulus fails to produce as much growth as the dollar before. Basically, the first dollar you spend in an expansion is a lot more powerful than the ten-trillionth dollar you spend.
The low-hanging fruit is gone. Now, it’s like a giraffe trying to climb a tree. By the way, I think tax cuts are a good thing. I’m not saying that Trump’s policies are bad. I think a lot of them are positive, but I don’t believe they’re going to work out the way his advisors expect. Someone may have to sit him down and say, “Mr. President, you may want to do all this, but honestly, we’re out of room. We’re out of headroom. We don’t have the ability to expand the debt.”
There is a good chance that cutting taxes right now will help the economy, but not enough to produce the growth required to make up the difference. That means larger deficits. Add all that new spending on top of it and the debt-to-GDP ratio is going to increase.
Where are we going to get the borrowing capacity unless the Fed accommodates it?
If the Fed accommodates it, it’ll produce inflation. If the Fed doesn’t accommodate it, we’re going to hit the wall and enter recession. That’s two possible outcomes, recession or inflation. Neither one is good. We can even get the worst of both worlds, and that’s the stagflation I mentioned. We’ll be writing and speaking a lot more about this.
The Reagan/Trump analogies are interesting. But there are major differences that people are not focusing on and a lot of reason to be concerned.
Right now, I would say that if things get really bad and we have a financial crisis, you’re going to want gold. If the economy grows, but we get inflation, you’re going to want gold.
All signs point to gold as a safe haven asset in this environment.
Regards,
Jim Rickards
for The Daily Reckoning
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[PatsFan1283]

The Schiff video I linked says a lot of what Stockman is saying.

I disagree with Stockman about the tea party and too much opposition to fiscal stimulus though. Trump won, he has a mandate and is more popular in districts than the house reps that will want to oppose him.

He didn't run in the GOP primary as a fiscal conservative at all and he smashed the field, that orthodox seems pretty much dead until it becomes necessity.

I really don't see much "civil war" brewing. Career politicians tend to be pretty good at "evolving", yeah some of these guys have principles but they also wanna keep their jobs.

We'll see though.