Skip to content

Another Government Shutdown in 2017?

Does March 15th, 2017 mean anything to you? Despite media silence, this day is significant. The 15th is D-Day for our debt ceiling. It is the cliché line in the sand and has massive implications on our short and long-term futures. Less than 2 weeks from now our government debt ceilings must be voted upon.

Remember the government shutdowns two years ago? The administration merely kicked the can down the road, creating a debt-ceiling holiday. The holiday ends in 13 days. At 20 trillion, the debt-ceiling freezes. It will then be law. The US Treasury has approximately 200 billion left in cash. They spend at a rate of 75 billion per month, leaving 2.5 months until our government cash dries up. Watch out for major market and economic fireworks.

David Stockman was the Former Reagan Administration White House Budget Director. Frequently, Trump is compared to Regan, so I thought this was pertinent. When asked if he thinks the “Trump Rally” for our markets can continue, he responded with:

““I think we are likely to have more of a fiscal bloodbath rather than fiscal stimulus. I don’t think there is a snowball’s chance in the hot place that’s going to happen. This is delusional.  This is the greatest suckers’ rally of all time.  It is based on pure hopium and not any analysis at all as what it will take to push through a big tax cut.  Donald Trump is in a trap.  Today the debt is $20 trillion.  It’s 106% of GDP [.  .  .] Trump is inheriting a built-in deficit of $10 trillion over the next decade under current policies that are built in.  Yet, he wants more defense spending, not less.  He wants drastic sweeping tax cuts for corporations and individuals.  He wants to spend more money on border security and law enforcement.  He’s going to do more for the veterans.  He wants this big trillion-dollar infrastructure program.  You put all that together and it’s madness.  It doesn’t even begin to add up, and it won’t happen when you are struggling with the $10 trillion of debt that’s coming down the pike and the $20 trillion that’s already on the books.””

— DAVID STOCKMAN

 

Back to the Regan comparison – Regan inherited 930 billion in national dept. It took 190 years to get there. The 930 billion represented roughly 30% of the country’s GPD. Why is 30% of the GDP important to understand? Because during this era, there was room for growth, tax cuts, etc. During his term, he spent another 1.8 Trillion in debt and that caused a temporary boom in our economy.

Our current problem is distinct. Trump inherited 20 Trillion in debt – 106% of GDP. The world “trillion” gets thrown around so lightly we are desensitized toward it. How much is 20 trillion dollars in debt? If we paid off debt at a dollar per second (disregarding interest), it would take 650,000 years to pay off national debt.

I don’t care who was elected. This is out of control.  We cannot ignore it forever.

Remember though, our DOW is at all-time highs! Everything is great! Our S&P500 is getting less press than the DOW, but doing well by all measures. Yet, the S&P is valued at 26 times earnings. Earnings have gone down for the last 6 quarters, making this incredibly over-valued. Markets are traded by machines and fundamentals do not matter.

Oh, and January inflation numbers just came out at .6%, the highest monthly total in over 3 years. If this rate continues, we will see an annual inflation rate of 7.2%.

Does that sound like recovery to you?

Consider days like today when gold and silver “spot prices” are down and to dollar cost average. Wealth insurance with gold and silver may prove to be the most important thing you can do for yourself and your clients. I know it is tax season and markets are at all-time highs. Do not let this sway you from seeing what is happening before us in the coming weeks and months.