Washington’s Bloated Big Engine That Can’t—Why The Shutdown Threat Matters, by David Stockman

Time inexorably moves on and debt inexorably grows and the reckoning draws ever closer. From David Stockman at davidstockmanscontracorner.com:

We have been here before—-in the blow-off stage of a stock market mania that is being driven by nothing more than momentum. Speculators and robo-machines alike are buying the market solely because it is going up (almost) every day.

Their excuse is FOMO. But their downfall will be utter failure to have noticed headwinds gathering everywhere—but most especially in the Imperial City.

The fact is, the current Continuing Resolution (CR) impasse underscores that Washington has been reduced to a state of operational dysfunction, policy fracture and partisan paralysis like never before. The pols can only keep the lights on 4 weeks at a time—or maybe even less as tonight’s shutdown showdown will determine.

To be sure, the talking heads of bubblevision bravely insist that this latest shutdown threat doesn’t matter because when push-comes-to-shove these CR and debt ceiling impasses always get resolved, enabling the market to live for another day. No sweat!

Au contraire. Each time the fiscal can is kicked down the road by one of these pathetically short CRs, it is actually a measure of defeat because under today’s macroeconomic and financial circumstances, time is the absolute enemy as the pressure in the cooker inexorably builds to the explosion point.

Everything is out of sync and behind the curve—on the monetary, fiscal and macroeconomic fronts.

The Fed has dithered for 100 months in failing to normalize interest rates and reduce its hideously bloated balance sheet. Belatedly, however, the knee-jerk Keynesians who inhabit the Eccles Building have become positively desperate about re-loading their “dry powder” to combat the next recession.

So they have put shrinkage of their massive portfolio of govevernment and GSE debt on automatic pilot. This means that for the first time in history the Fed will be dumping bonds on the market at a $600 billion annual rate come October.

To continue reading: Washington’s Bloated Big Engine That Can’t—Why The Shutdown Threat Matters


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