Stockman: Expect a Government Shutdown

This post Stockman: Expect a Government Shutdown appeared first on Daily Reckoning.

[Ed. Note: To see exactly what this former Reagan insider has to say about Trump and specifically what he believes must be done in government, 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 before it is too late. To learn how to get your free copy CLICK HERE.]

David Stockman joined Greg Hunter at USAWatchdog.com to discuss what he believes is a coming budget calamity.  Stockman offers his insights into what he predicts will be very positive moves in the future for silver and gold.  The financial expert and bestselling author goes beyond the messaging found in the mainstream to offer his exclusive analysis on what a government shutdown will entail for Wall Street and Main Street.

“Number one, everybody was surprised by Donald Trump’s election. Secondly, I think there is still not a correct diagnosis for why it happened. It was not his platform, and certainly it was not his resume. It was the fact that the financial system we’ve had for the last thirty years is failing. It has been great for the bicoastal elites, a term I use in my book TRUMPED!, but if you look at Flyover America you see all of that area in between the coasts – it is a dire situation… I think what we are dealing with now is fundamental questions about a government that is out of control, a Fed that has printed money endlessly and stayed deep in the canyons of Wall Street. They have not helped main street America… It has been the 1% that has received the great windfall.”

“Beyond that, we have a foreign policy that is out of control. We’re intervening everywhere. We have spent trillions. We have destroyed half of the Middle East. We’re at an inflection point. There has been a fundamental break in terms of the public support for the Wall Street – Washington Axis that has run domestic and foreign policy for the last thirty years.”

David Stockman is the former Budget Director serving President Ronald Reagan where he worked first hand the complexities of the budget.  Stockman is a two term Congressman and has worked on various Wall Street firms.  He is the bestselling author of TRUMPED! A Nation on Brink of a Ruin and How to Bring it Back (learn how to get your FREE copy – CLICK HERE).

“I think what people are missing is this date, March 15, 2017. That’s the day that this debt ceiling holiday that Obama and Boehner put together right before the last election in October of 2015. That holiday expires. The debt ceiling will freeze in at $20 trillion. It will then be law. It will be a hard stop. The Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion a month rate. By summer, they will be out of cash. Then we will be in the mother of all debt ceiling crises. Everything will grind to a halt. I think we will have a government shutdown. There will not be Obama Care repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.”

“Unfortunately for Donald Trump, not only did the public vote the establishment out but that left on his door step the inheritance of thirty years of debt build up and of a fiscal policy that has been really reckless in the extreme. Even though people would like to think that he is the second coming of Ronald Reagan and that we’re going to have “Morning in America” I don’t think it looks that promising. He is inheriting a mess that pales into insignificance for what we had to deal with in 1981 when I joined the Reagan White House as Budget Director.”

“They are going to raise interest rates on March 15, they have to. I am talking about the Federal Reserve. They have dithered for 100 months. You are going to be in an environment which there is no more stimulus coming through the Fed. In which the vaunted Trump fiscal stimulus, or a handoff of the stimulus baton to the fiscal side will clearly not be happening. Then the markets will discover… That it is home alone. Washington isn’t there for one more go-around of this fantasy… The day of reckoning will happen. I expect the market will easily correct by 20% and probably a lot more. I think it is going to begin March 15 when it becomes clear where we are…”

When Greg Hunter asked about the looming government debt circumstances in Washington and whether a default could be on the horizon Stockman responded, “When they run out of cash… (Donald Trump) is not going to roll over and agree to whatever Capitol Hill demands in order to get a debt ceiling increase. He is going to face them down and I have great regard for Mick Mulvaney, the newly confirmed Budget Director under the Office of Management and Budget. He has clearly understood that when the Treasury Department has run out of cash and the debt ceiling has been used up, and you can’t borrow anymore the President has the authority to allocate spending.”

“The point is that we have in a typical month $250-300 billion of revenue coming in. That will easily cover the debt service per month. That will cover social security and other critical payments. But when it comes to paying grants to state and local governments, contractors for military or a whole range of other activities – if you don’t have the cash you put the bills in the drawer. I think that is what is going to shock the system. This is what will (scare) Wall Street and the markets. Then you won’t have a sudden resolution for the problem. It could go on for days and weeks. In the past since no President has been advised to allocate spending, it comes to a point where somebody blinks, they pass a resolution in the wee hours of the night and the government goes on it’s way spending and borrowing. This time, this summer, there is going to be day-after-day as to who is going to blink. Who is getting paid? Who isn’t? What bills are building up and which one’s aren’t? This is going to be a maelstrom like we have never seen before. The markets are not even remotely prepared for this.”

USAWatchdog David Stockman

“The casino is going to begin to realize and piece together the fact that there is no plan. There is not fiscal stimulus. The whole system is heading into some kind of crash landing. That is going to change the manic delusions underway today (in Wall Street). I think we are going to have a greater depression in the stock market than we’ve had since 1987 when it dropped 25% in one day… The big correction that I am talking about is in the $62 trillion of debt outstanding in the country. The $30-$35 trillion in the various index areas and variously traded stocks. The big adjustment is going to come there. It will spill over into the real economy. One of the silver linings of this phony recovery that we’ve had since the crisis of 2008 is that Main Street hasn’t really recovered. There is not a big bubble there in jobs, production, income, living standards that will be taken away. The only strong recovery that we’ve had is in the financial markets.”

When asked about gold looking like it is building a steady investment option he remarked, “I think it is due to the fact that there is some semblance of rationality left in the edges of the financial markets. Some people realize that these central banks are out of dry powder. That era of massive money printing is over. They can see that the governments of the world… are all close to bankrupt. In that environment there is going to be a massive reset of financial asset values. The central banks are going to be totally discredited. After all the central banks have said “we know what we’re doing.”

“When people realize that the central banks have failed completely, that the practice of quantitative easing, zero interest policy and the various “tools” were phony – then I think there will be a dash for the only solid monetary asset left in the world which is gold. When you take the size of the global financial markets which I put at about $300 trillion (debt, combined stock market value) the gold market is tiny compared to the size of the financial system. It will only take a small shift on the margins into the asset of last resort to make the price of gold to really start to soar. I think that is going to happen. I don’t know when. The best thing to do is be patient and to be long in gold and it will pay off handsomely… when the crisis intensifies and hits ground zero.”

To catch the full interview covering the debt ceiling and a government shutdown on USAWatchdog.com CLICK HERE. If you want to learn more about how to get your own copy of Stockman’s book that predicted Donald Trump’s 2016 victory and has outlined exactly what needs to happen going forward CLICK HERE.

Regards,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The post Stockman: Expect a Government Shutdown appeared first on Daily Reckoning.

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