TRUMP HOTEL, New York City – Yesterday, where we left off… Mr. Trump’s triumphant, ragtag army was marching on Washington.
After his victory over the forces of Hillary Clinton and the Establishment… he has turned his face towards the nation’s capital. With nothing in his way, he will seize it in a matter of weeks.
Shovels and Pumps
Mr. Trump has surprised the nation twice. First, the amateur politician trounced Jeb Bush on the sand flats of Florida. Then, he outflanked Ms. Clinton in the upper Midwest.
Clinton was the odds-on favorite. But she fought an unimaginative battle with mercenary troops who had no stomach for real fighting.
Mr. Trump called up citizen soldiers out of the hollows of West Virginia and the old industrial suburbs of Gary, Indiana.
They appeared on the battlefield as if out of nowhere, attacking the former secretary of state on her exposed flanks. They were “deplorables,” she had said, but they fought well.
And now, with Washington’s two protective armies swept from the field, Mr. Trump advances.
“I will drain the swamp,” he has promised.
Yesterday, we spent much of the day with someone who knows the swamp well.
David Stockman was a very young congressman from Michigan when Ronald Reagan called on him to dig drainage ditches as his chief budget engineer.
Reagan was an “outsider,” an actor from California, not a lifelong politician.
He, too, had beaten the insiders’ man – President Carter. And he, too, brought shovels and pumps with him when he arrived in Washington.
“Yes, the parallels are certainly there,” Stockman told us.
“I’ve been in touch with the Trump team. I’ve even written a book about Trump. [Find it here.] But those guys are going to be surprised. They just have no idea what they’re up against.”
Dependent on Debt
But to back up a bit… we have an economy that depends on debt.
Banks loan new money into the system ex nihilo – out of thin air. Without those new loans, the money supply falls as old debts are settled. Without more money, the economy stiffens.
Our friend and economist Richard Duncan estimates that credit (debt) must increase by at least 2% a year or the economy will fall into recession.
For the last 35 years, interest rates have been coming down… to make borrowing easier. Now, there is plenty of debt in the system – $63 trillion in the U.S. alone – but not much room left for interest rates to go down.
“Monetary policy is exhausted,” says David. “Everybody knows that. What they don’t know is that fiscal policy is exhausted too.”
[Note: Monetary policy attempts to stimulate the economy by setting the price of credit. Fiscal policy attempts to stimulate growth by increasing government spending.]
Donald J. Trump has promised to get the economy growing at a 4% annual pace. To do so, he will have to stimulate it somehow.
The experts will tell him he has only two tools: monetary or fiscal stimulus. (He hasn’t asked us; we’d advise him to stay in New York.)
The “reflation trade” – betting on rising stock and commodities prices and falling bond prices – is a gamble on inflation; it is a bet that Mr. Trump will rotate from monetary stimulus to fiscal stimulus. Long term, we think it’s a good bet.
Inflation is what “The Donald” is promising. But fiscal stimulus requires congressional approval. He may not get it. That may be Mr. Trump’s biggest surprise of all. He may not drain the swamp. He may sink in it.
Yesterday, we left you with two possibilities:
Either Congress goes along with Mr. Trump and the credit bubble ends in an inflationary blow-up…
…or it holds the line – refusing further fiscal stimulus – and the result will be a deflationary disaster.
There are, of course, more twists, turns, and nuances in this plot. But that is the basic storyline.
Stockman believes the swamp will swallow up Mr. Trump, his army, and his big budget plans.
“I’ve seen it happen. There are alligators in that swamp,” says David, showing his scars.
Each gator will fight for his own subsidy, his spending, his budget, his tax break, his job, his power, his agency, his pet project.
There will be splashing around… tails swinging wildly… body parts chewed off… and blood in the water up and down the Potomac.
Republicans will want cuts to social programs if they are going to approve more spending on infrastructure and the military. Democrats will refuse to go along with Trump’s spending unless social programs are preserved.
Every step the new president takes will bring him deeper into the swamp.
The bottom line, says Stockman: “Ronald Reagan’s program didn’t survive. Neither will Mr. Trump’s.”
P.S. But that won’t be the end of the story. There are more surprises coming. Stay tuned.
hIS ESSAY WAS ORIGINALLY PUBLISHED IN STANSBERRY DIGEST
BY PORTER STANSBERRY
When J.P. Morgan (the man) was called to testify before Congress about the "money trust" and asked to explain why some firms received credit and some firms didn’t, he famously explained that the first test of any loan was the character of the man borrowing the money…
The first thing is character, before money or property or anything else. A man I do not trust could not get money from me on all the bonds in Christendom.
Today, not only have our bankers lost all concern for character, these online, peer-to-peer lending companies were actively seeking out subprime customers. It’s insane. And it’s unbelievable that investors would have bought these packaged loans.
How did this happen less than 10 years after the subprime mortgage crisis? It happened because the Fed and other central banks around the world drove interest rates on virtually every asset so low that investors became desperate for yield. Any financial asset that could generate yield could find a buyer between 2010 and 2016. Subprime auto loans. “Junk”-rated corporate bonds. Subprime student loans. And, apparently, even subprime online personal loans.
For most of the last 40 years, our political leaders and their puppet economists have preached that the key to economic growth is the expansion of debts and more spending. Just this morning on CNBC, I heard Larry Summers – the former Treasury secretary under Secretary Clinton and former president of Harvard – criticize Trump’s plan to eliminate estate taxes (the “death tax”) by saying that ending it would incentivize people to save money, which would reduce economic growth.
Meanwhile, no human being has ever become wealthier by spending. Not a single empirical example. And no society has ever raised itself out of poverty except by carefully saving.
But the most powerful economist in the United States – the former president of Harvard University – believes that encouraging the formation of private capital is an impediment to economic growth. He argues for more government spending and the creation of even more government debt.
These policies, which have been favored by Democrats and Republicans alike, have seen our country replace one debt bubble with another for most of the last 40 years.
We’ve seen this happen in our economy on a regular basis for a long, long time…
In the early 1990s, the bubble was in savings and loan institutions. In the late 1990s, it was in telecom bonds and internet stocks. In the mid-2000s, it was subprime mortgage debt. Today, it’s "junk" bonds, subprime auto, student loans, and, almost unbelievably, subprime online lending.
It’s all unwinding, just like it always does. The only question left is… how many of these bubbles and busts will you have to live through before you learn how to take advantage of them?
Editor’s Note: Porter has developed a new strategy to profit from this debt unwinding. He says, “It’s nearly foolproof… And the single best way to make 10–20 times your money as the credit collapse unfolds. Anyone with a regular brokerage account can participate.” That’s why he strongly recommends that you at least learn how to make these trades yourself.
So if you want to know how you can profit from the great American credit collapse that Bill has been warning about, go here now for details.
There Is a 100% Chance of Recession Next Year
Today, we’re taking on a big economic mystery… And investors who don’t understand these concepts are going to get wiped out.
Dollar Hits 13-Year High
With the market now expecting a Fed rate hike in December… and Trump on his way to the White House… the dollar is on an absolute tear. And its rivals – especially the euro – are getting hosed.
Diversification – splitting your investments among different types of investments – helps smooth out the ups and downs in your portfolio. Here’s how it worked out for investors in 2016.
Lots of Trump feedback in the mailbag today… And not everyone’s happy with Bill’s view on what’s in store.
It is bad enough that our President-elect Trump still has the liberal media trying to undermine his every move and criticize everything he says. Why must you fall in line and throw gasoline on the fire?
It doesn’t surprise me because you have got in digs about everything he’s ever done. But it does surprise me from the standpoint that you most generally do not go along with the crowd. You always have original ideas and a different take on most everything else.
He has ALL of the liberal, blind, biased media plus all of the stupid liberal people, George Soros, and other groups without numbers against him. Don’t you think that’s enough of a challenge for him without you kicking in with them?
Shame on you. At least wait until he gets in office to pooh-pooh all he says and does! It is nice that David Stockman has his opinion on so many financial issues, but even he can’t possibly know with any certainty about what can or will happen.
Times have changed and will continue to do so. Keep up you other fine work. But you should cut Donald some slack. He may surprise you.
– Bill M.
Living in Britain, I have been an avid reader of your Diary for many years and love it.
More recently in the run-up to the U.S. presidential election, I have been forwarding each day’s entry to my wife and children. We have all been hanging on your every word hoping against hope that you are wrong about Trump and that he is the real deal for the first time since JFK!
We dream about a new U.S. leader who will genuinely embrace global peace. Thank you for your wonderful insights and best wishes to your mom for a speedy recovery to good health!
– Terry J.
May God bless your mother. And may God bless and make America great again. If I could drink to your good health in the local pub I would. But I’m barred… by a wee compulsion. So, I say prayer at Mass later. “The Donald” would need a High Pontifical to sort out the mess he faces…
– Declan C.
Bill’s warning on inflation has also gotten readers thinking…
Your Diary is by far the best read of my day. That said, please consider the possibility that U.S. Treasury yields have risen 30% since Election Day. Perhaps because the risk of a U.S. default has also risen 30% since Election Day. Just sayin’.
– Erik R.
In Case You Missed It…
Today, we want to share a new money-making opportunity from our friends at Palm Beach Research Group. To learn about this unconventional way of collecting a steady extra “payday” from home, click here.