David A. Stockman in Trump! (2016) has a dim view of candidate Donald Trump, as well as his presidential philosophy. Stockman believes that Trump is trying to declare a "morning in America" that never was. He posits that one of the great virtues of the Trump candidacy is The Donald's propensity to lob wild pitches--knowingly or not--at the sacred cows of imperial Washington, thereby exposing the tissue of hypocrisy and cant, which surrounds them.
But within the heard of revered ruminants none is slathered in more hypocrisy than the federal budget and official Washington's unctuous professions of devotion to safeguarding the "full faith and credit of the United States." The truth of the matter, of course, is that our rulers have been marching the nation's fiscal accounts straight toward national bankruptcy for the last 35 years, at least. And since the arrival of Ben Bernanke at the Fed, Washington's actual policy with respect to the nation's "credit" has been to debauch it. So Donald Trump's recent rumination about negotiating a "discount" on the federal debt was priceless. It caused a Beltway chorus of fiscal house wreckers to loudly harrumph and admonish the GOP candidate about the sanctity of Uncle Sam's credit promises.
RONALD REAGAN THE GOD THAT FAILED
Social Security and Medicare entitlement reform was off the table during the Volcker era due to what Stockman calls "the trick of the front-loaded payroll-tax increase. This caused cash surpluses in the trust finds and the accumulation of intra-government accounting IOUs for the next two decades. At the same time, these front-end surpluses functioned to bury the long range fiscal disaster these inter-generational "social insurance" entitlements embody in 75-year projections that are always way too optimistic.
Likewise, the White House took any further tax increases or defense cuts off the table in January 1985. The spending-cut weary politicians of both parties, in turn were more than happy to oblige by shelving any further meaningful domestic spending reforms, as well. So in 1985, fiscal policy went on automatic pilot--where it has more or less languished ever since. Even well before the fiscal madness of George W. Bush broke out in 2001, the handwriting was on the wall. By the time the 12 years of Reagan-Bush administrations had elapsed, the public debt had reached $4.3 trillion, and was then 4X the size of national debt that Jimmy Carter had left behind.
Ironically, Ronald Reagan, the scourge of deficit spending, and his 1980 primary opponent, George H. W. Bush, who had noisily campaigned against "voodoo economics," had teamed up to generate deficits that averaged 4.1% of GDP. That initial 12-year plunge into permanent deficit finance was not owing to a weak economy or insufficiently robust real GDP growth, as Reagan revisionists have argued ever since. In fact, between 1982 and 1993, GDP growth averaged 3.6% annually and was at the top of the historic range.
No, it was a political choice that changed the policy landscape forever. The Reagan-Bush deficits amounted to 3X the average deficit that had been accrued during peacetime by FDR, Truman, Kennedy-Johnson and Jimmy Carter combined. Accordingly, once the GOP gradually embraced a militant anti-tax doctrine that simply ignored the ballooning levels of national debt.
Indeed, during the last three Clinton years, the federal budget registered surpluses during the 1990s--albeit unsustainable ones owing to the massive one-time tax windfalls from Greenspan's dot-com bubble. But the structural fiscal problem was not solved; it was merely temporarily buried beneath three delusions.
THE THREE GREAT FISCAL DELUSIONS
The first great fiscal delusion was that the giant Reagan defense build-up--which was actually a vast armada of conventional land, sea and air forces ideally suited to wars of invasion and occupation--would go quietly in the night when the cold war ended and the Evil Empire [the remnants of which is Trump's "best friend"] was no more. It didn't.
Instead, the military-industrial complex and its neocon propagandists [PNAC] panicked the nation into a pointless "war on terrorism" after the fluke tragedy of 9/11. Soon the defense budget had doubled, rising from under 3.0% of GDP during the early post-Cold War period to nearly 6.0% of GDP after Bush's war campaigns reached full intensity by 2007. The so-called Social Security surplus, which had financed the general fund deficit for more than two decades, had not simply disappeared. They had now entered the liquidation phase of Washington's phony trust fund accounting scheme.
The nation's true public debt ratio today is 106% of GDP. Thirty-five years on from the first trillion dollar crossing, the public debt burden on national income has tripled. And when you add the $3 trillion of state and local debt, the total public sector debt ratio is nearly 120% of GDP. And that gets to the final question. How did Washington get away with this vast fiscal debauch? How did we get to the point where an unschooled outlaw candidate for president would utter the impertinence default?
The short answer is that Trump is here because Washington's fiscal kick-the-can-game depended upon a central bank monetary parlor trick that left Flyover American behind, and that, in any event, is now over and done. To wit, "crowding out" and high consumer price inflation never occurred because the Greenspan Fed launched the entire world economy down a path of massive credit expansion and financialization--an insidious process engineered by the concerted action of all the major central banks. That convoy of money printers generated large but dangerous central banking "vaults" where Uncle Sam's debt has been temporarily sequestered.
THE GLOBAL MONETARY ROACH MOTEL
The central banking vaults was the equivalent of a monetary roach motel: the bonds went in, but they never came out. What happened in practical economic terms is that central bank fiat credit was substituted for real savings from privately earned incomes in the financing of public debt. Stockman posits that the ridiculously optimistic rosy scenario currently projected by CBO, Washington will generate at least $15 trillion of new public debt in the decade ahead under a realistic economic forecast that essentially assumes the next 10 years will perform as well as the past decade. So that the nation's current mountain of public debt will inexorably rise to $35 trillion by 2026 or so. Likewise, the giant financial bubble and vast malinvestments generated by the world's central banks over the last two decades now guarantee a long spell of global deflation. That's why we believe that the U.S. nominal GDP will be lucky to reach $24 trillion by that same year (3% annual growth). The math computes out to a public debt equal to nearly 150% of GDP.
THE GLOBAL SOVEREIGN-DEBT MARKET--THE MOTHER OF ALL FINANCIAL BUBBLES
Stockman declares that for all practical purposes "budgetary realities" means an endless crisis lurks in the nation's future as a result is the real end game of a lamentable path of unprecedented fiscal profligacy embarked upon 35- years-ago. Needless to say, it was not Donald Trump who trashed the "full faith and credit of the United States" along the way. Nor is it Donald Trump who offers the prospect of a solution. Trump's stated plans would make the nation's fiscal accounts even worse.
You don't need a lot of wonky budgetary detail to know that if you increase defense spending, massively cut taxes, and exempt Social Security, you end up with even more red ink. That's what Ronald Reagan proved for all time. Trillions will be lost. Government's that can't roll their massive but suddenly far more expensive debts will default. The Donald's expertise in that department, at least, should be given its due.
Robert De Niro (left) as Bernie Madoff and Diana Henriques in a still from the HBO film "The Wizard of Lies." (Courtesy Craig Blankenhorn/HBO)
New York Times financial reporter Diana Henriques was the first reporter to interview disgraced financier Bernie Madoff after he'd gone to prison for orchestrating a $50 billion Ponzi scheme.
Now her book, "The Wizard of Lies," has been made into an HBO film starring Robert De Niro. Henriques (@dianabhenriques), who plays herself in the film, talks with Here & Now's Jeremy Hobson. http://www.wbur.org/hereandnow/2017/05/17/bernie-madoff-wizard-of-lies
This segment aired on May 17, 2017.