Now Cometh The Washington Debtberg, Part 2

Just when you think the Donald could not possibly come up with anything stupider than his last tweet, he actually does. But this morning’s unrelieved balderdash takes the cake:

 ..Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better Trade Deals for our country!

Well, the debt is $23 trillion, not $21 trillion, and, as we showed in Part 1, $1 trillion of that has been racked-up in just the last 130 days. And during the 34 months since the Donald’s swearing in on January 20, 2017, the total public debt is up by $3.058 trillion or $2.9 billion per day—counting weekends, holidays and snow days!

Needless to say, that’s in Obama’s league and then some. During Barry’s second term after the recession had ended and today’s long, modest recovery had set in, the total public debt increased by $3.5 trillion or $2.4 billion per day; and during the equivalent 34 months before the Donald’s arrival, it increased by $2.29 billion per day.

So even though Trump inherited a bigger economy and tax base and lower unemployment and safety net expenses, he has managed to add to the public debt at a 21%-27% faster daily rate than what he inherited.

To paraphrase the old saw about people who live in a glass house: If you are pumping up the public debt even faster than Barrack Obama and are doing so at the top of the longest business expansion in history, you best ixnay the invidious comparisons with one and all of your predecessors.

Likewise, as bad as the tariffs are as an economic matter, they do not amount to a hill of beans in the fiscal equation. For example, during the current year (FY 2020) estimated total customs collections (inherited plus Trump’s China tariffs) are $64.3 billion compared to total Federal spending of $4.677 trillion. So the Donald’s ballyhooed tariff revenues amount to just 1.4% of the raging spending spree now underway.

Besides that, where in the world did the Donald possibly get the impression that Uncle Sam will “start paying down large amounts” of the nation’s staggering public debt?  Even the ever obeisant Kudlow would not likely have told him that tall tale.

Trump’s actually adding to the public debt like there is no tomorrow at the worst imaginable time: Namely, on the eve of what is certain to be the next inexorable recession after 125 months of expansion and in the face of the Baby Boom retirement tsunami which will soon hit 11,500 per day and drive the cost of the national entitlement complex for the elderly skyward.

So in the great scheme of things, there is no other conclusion than that the Donald is giving cluelessness and obliviousness an altogether new definition. Indeed, he is tweeting about paying down the debt and cutting taxes when the latest tsunami of red ink is fairly lapping up against the Oval Office window panes.

The real recession-induced surge of red ink, of course, is yet to come but today’s economic releases indicate it is not far behind. And when that happens, the current 5% of GDP structural deficit at so-called full-employment will become $2 trillion and 10% of GDP or more in a heartbeat.

Thus, industrial production in October hit the skids again. Per this morning’s release, the index is now clearly in negative territory on a year-over-year basis. Moreover, the fact remains that industrial production is a leading indicator that proceeds broader declines in output, jobs, wages and spending.

The broad industrial production index covers manufacturing, utilities and energy/mining and has been steadily weakening at the component level on an across the board basis. Compared to December 2018, the October index was down by—

  • -1.7% for over all industrial production;
  • -2.3% for consumer goods;
  • -2.9% for business equipment;
  • -15.7% for motor vehicles and parts.

The retail sales figures released today were just as bad. Notwithstanding an upward blip in gasoline sales during the month, there can be little doubt that the vaunted consumer is running out of wherewithal to spend. Not only did October retail sales (brown line) post at a punk 1.31% gain year-over-year, but they now are clearly churning in negative territory after inflation (purple line).

During the month of October, in fact, the 16% trimmed mean CPI posted at +2.36% versus prior year—meaning that real retail sales have shrunk by -1.05% during the past year.

Then there is the Cass Freight index. It is now down every month since April and posted at -5.9% in October. Furthermore, unlike 2016-2017 when trade and production bounced back in response to the President Xi’s massive pre-coronation credit stimulus which goosed the entire global economy, this time the Red Ponzi is drifting steadily slower because even the Red Suzerains of Beijing understand that China cannot endure another upward surge in its $40 trillion mountain of debt.



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