The Time Bomb Planted In Uncle Sam’s Books

  • What’s $4 billion in a day? Everything, if Uncle Sam’s going to pay his bills
  • Small business getting impatient with Trump and Congress
  • The new FDA commish: A boon for biotech
  • Legalization on the bureaucrats’ timetable… the “surreal” debt ceiling showdown… a new reader’s hazing… and more!

Tick, tick, tick…

When we left you yesterday, the U.S. Treasury had all of $34 billion in cash on hand. After we went to virtual press, the Treasury issued a new Daily Treasury Statement. The total is now down to $30 billion.

Tick, tick, tick…

As a reminder, the total was $435 billion during the run-up to Election Day last year. Bubble Finance Trader editor David Stockman — who earned his green-eyeshade cred as Reagan’s budget director — can’t help but conclude that anti-Trump career bureaucrats at the Treasury have planted a time bomb within Uncle Sam’s books, purposely spending down that cash hoard.

They’re pushing the government toward default at the very moment the debt ceiling comes back into force — tomorrow.

Tick, tick, tick…

These numbers matter even more than you’d think by looking at them.

For several years, your editor was of the opinion that the government can’t default if it can still make the interest payments on the national debt. For instance… during fiscal year 2016, interest expense on the debt was $212 billion… while total tax receipts were just shy of $3 trillion. No problem, right?

Wrong, said Morgan Stanley economist David Greenlaw in 2011. During the debt ceiling drama of that year, he wrote an interesting report. “While it is true that the government takes in a good deal more in receipts than it pays out in interest on the debt over the course of a full year, on certain days, the government takes in much less than it pays out.

“For example, the Treasury has an interest payment of about $30 billion due on Aug. 15. On that day, it will take in about $15 billion in tax receipts, so it won’t even have enough to make the interest payment alone.”

Again, the Treasury’s cash on hand right now totals $30 billion. If the Treasury can’t issue new debt and a big interest payment comes due on a given day… then what?

No, the “kaboom” moment won’t come tomorrow… but it also won’t be the “September or October” time frame you might’ve run across from mainstream sources. David Stockman believes the fuse will run out before Memorial Day.

And almost no one in Washington sees it coming. “Of course” Congress will raise the debt ceiling, Senate Majority Leader Mitch McConnell said last week. “The government is not going to default.”

“I think that all us believe that a debt ceiling increase with the appropriate amount of real balanced-budget directives is accomplishable under this president and a unified government,” says Rep. Mark Meadows (R-North Carolina), chairman of the House Freedom Caucus.

But what happens in the midst of all that “accomplishable” horse trading? Here’s the problem, says David: “The ticking debt ceiling clock will mightily interfere with — if not block completely — the process of congealing an agreement within the GOP caucuses on the FY 2018 budget resolution.

“In fact, the legislative and political maneuvering in the run-up to this summer’s debt ceiling vote will powerfully concentrate the minds of the backbench fiscal hawks; it will remind them that their fate under the massive deficits embedded in the Trump stimulus will be to walk the plank time after time to raise the debt ceiling!”

Bottom line: “There is no pathway to a House and Senate majority for a multitrillion-dollar debt ceiling increase.”

[Ed. note: Not only does the debt ceiling come back into force tomorrow, the Federal Reserve will act to raise interest rates. David says that one act will trigger a chart formation that signals a crucial turning point for the markets.

Knowing about this turning point signals the difference between getting wiped out and walking away with a retirement fortune. Click here and David will show you exactly what’s at stake tomorrow.]

To the markets, which are adrift as the Fed begins its two-day meeting that will end tomorrow with another interest-rate increase.

The major U.S. stock indexes are all in the red as we write, though not dramatically. The Dow rests at 20,845. The 10-year Treasury yield is holding near 2.6%. Gold keeps holding the line on $1,200. The only meaningful movement is in the energy patch; crude has sunk another 76 cents, to $47.64. This time a week ago, it was above $53.

The big economic number from the government today points to accelerating inflation: Producer prices rose way more than expected in February, up 0.3%. The year-over-year increase works out to 2.2%, the highest in nearly five years.

The trade group that speaks for small-business owners is getting impatient with the Trump administration and Congress.

The National Federation of Independent Business is out with its monthly Optimism Index. It’s down six-tenths of a point from last month… but the number has nonetheless registered a reading over 105 for three straight months. It remains near historical highs across the survey’s 43-year history.

But… “The sustainability of this surge and whether it will lead to actual economic growth depends on Washington’s ability to deliver on the agenda that small business voted for in November,” says NFIB president Juanita Duggan. “If the health care and tax policy discussions continue without action, optimism will fade.”

Often a revealing part of the survey is where respondents are asked about their “single most important problem.” A few years ago, the leading category was “poor sales.” More recently, taxes and regulations were usually tied for first place. Now the landscape is shifting again…

Good help

That’s the first time in a long time we’ve seen “quality of labor” in second place. Qualified workers are harder to come by, and a quarter of survey respondents reported raising compensation. But the survey also reveals shaky confidence business owners can pass along those higher costs to their customers…

President Trump has chosen an FDA commissioner. The choice bodes well for the biotech sector, though not quite as well as we’d hoped.

Just after Inauguration Day, we’d anticipated the appointment of a true outsider — someone with a venture capital background who would break with the agency’s 55-year history of demanding every new drug be proven “safe and effective.” That standard has kept many promising drugs off the market, stuck in an endless series of trials for effectiveness — even after safety had long been proven.

In the end, Trump chose Scott Gottlieb, who was a deputy FDA commissioner during the Bush administration and hung out at a conservative think tank during the Obama years. “While not a radical reformer,” writes Ronald Bailey at Reason, “Gottlieb clearly has a good understanding of how over-regulation has been slowing down innovation.”

To wit, Gottlieb once wrote, “In so heavily prioritizing one of its obligations — the protection of consumers — the FDA has sometimes subordinated and neglected its other key obligation, which is to guide new medical innovations to market.”

It helps that Gottlieb is a cancer survivor; he knows the human costs of keeping promising treatments out of the hands of patients who need them.

Adds Ray Blanco of our science-and-wealth team (himself a cancer survivor), “While the biotech industry has been up and down within the last 12 months, it’s clear that there is a lot to look forward to. Things are bright for this sector in 2017.”

Bureaucrats gone wild, Gopher State edition: A Minneapolis liquor store is being punished for jumping the gun on newly legalized Sunday liquor sales.

This month, Minnesota Gov. Mark Dayton signed a bill allowing liquor stores to sell their wares on Sundays. But… the law doesn’t take effect until July 2.

Screw it, figured Jim Surdyk, owner of Surdyk’s Liquor and Cheese Shop — who opened for business last Sunday and announced it on Twitter…

Surdyks Liquor Tweet

“My father was the first one to discount liquor way back in the 1960s, and he didn’t wait till July to do it,” he told the Minneapolis Star-Tribune.

Now the city of Minneapolis has come down hard. Not only was the store fined $2,000, but its liquor license is suspended for 30 days — starting July 2, when the new law kicks in. Ouch…

To the mailbag: “Maybe the ‘psychologist’ is a new reader, for otherwise he couldn’t rationally or logically come to the conclusion that The 5 ‘is in the bag’ for anyone (and his demonstrated lack of either of those traits doesn’t speak well of the profession if he is a psychologist).

[Oh, dear. We don’t know whether yesterday’s correspondent is a new reader, but one of our longtimers is about to subject him to a newcomer’s hazing…]

“I love reading The 5 because the only thing I find them ‘in the bag for’ is the truth, wherever it leads.

“Was his comment ‘Trump’s character profile is such that he would sell out the U.S. in order not to be revealed for the poor excuse for a human being that he is’ his professional and rational opinion?

“It is also telling that immediately following that childish name-calling, he follows with his defensive and proximate comment that he isn’t a Democrat.

“I think the ‘psychologist’ needs to up his game considerably if he is going to engage on these pages.

“I have heard no hard evidence at this point that Trump has any kind of inappropriate relationship with Russia. In fact, the investigation led by the Obama administration and as reported by his own James Clapper said they found ‘no such evidence.’

“However, while everyone is reporting there is no evidence for Trump’s claim that he was wiretapped, I know of two recorded conversations that Trump had with Mexico’s president and Australia’s prime minister that were widely reported in the media.

“Add in the WikiLeaks info on how broad and wide the Intelligence Community’s surveillance activities run, including the ability to put Russia’s DNA on such activity, and it seems harder to believe at this point that he wasn’t wiretapped while he was still a candidate.

“Again, thanks to WikiLeaks, there is far more evidence of the Democrats interfering in the election by conspiring to oust Bernie, receiving debate questions in advance from CNN and getting advance copies of articles on Clinton so she could approve the copy than there is of any Russian interference.

“Trump does plenty of illogical and potentially dangerous things (like starting a trade war) that he is frequently challenged for in these pages.

“Let’s stick to the facts as best we can and not start piling on with childish name-calling.

“After all, ‘It’s the government, stupid!’

“Both parties can be hazardous to your health, wealth and freedoms. Telling the truth is the only way to combat it while we still enjoy that freedom.”

“Dave, is it not surreal,” writes one of our regulars, “that the Deep State is monkeying with Uncle Sam’s books to push the federal government toward default in order to create a crisis for President Trump?

“For that matter, it’s surreal that we’re now approaching $20 trillion in national debt (not counting future liabilities, which are even more yuuuge).

“It’s equally surreal that we need a debt ceiling in the first place — and that it keeps getting raised.

“Perhaps most surreal of all is the fact that our ‘leaders’ are playing this psychotic game of brinksmanship with the economy, as if the resulting crisis won’t be catastrophic for all of us!

“Apologies if that all sounds a bit gloomy. I’m just having a moment of clarity.

“Love The 5!

The 5: Just wait till the debt-ceiling brinksmanship gets tied up with a “Russia” investigation. No wonder David Stockman says all activity in Washington will grind to a halt.

We’d joke about “Gee, is that such a bad thing?” except for what it might portend…

Happy Pi Day,

Dave Gonigam
The 5 Min. Forecast

P.S. As we write, the Federal Reserve’s Open Market Committee is convened in Washington for two days of meetings. (The big nor’easter storm was a bust at the south end of the Northeast Corridor, so everyone made it in to D.C.

We already know the outcome — a third increase in the fed funds rate in the last 15 months.

But few people know what the consequences of that increase will be.

Or how devastating they could be.

Before tomorrow, you owe it to yourself to examine David Stockman’s spooky charts revealing what’s happened during past episodes like this. Your wealth might well depend on it. See for yourself when you follow this link.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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