“There will not be Obama Care repeal and replace. There will be no tax cut. There will be no infrastructure stimulus. There will be just one giant fiscal bloodbath over a debt ceiling.”1)Stockman: “After March 15 Everything Will Grind To A Halt”, Source: Zerohedge 2017-02-27.These are the words of David Stockman, a former Reagan Administration White House Budget Director, who insists that a market bloodbath is imminent as the debt ceiling holiday will have been finished by March 15, 2017.
“We will have a government shutdown,” said Stockman to CNBC. “It is totally unexpected, unpriced in by Wall Street, [and] it will spook everybody.“2)Wall St. is misreading Trump, and a market bloodbath is imminent: Stockman, Source: CNBC 2017-03-05.March 15 is also the day of the Federal Open Market Committee meeting during which a rate hike decision is expected to be taken; the Dutch election is slated for the same day. Will it be the beginning of the great financial turmoil?
The last suspension of the debt limit was decided in October 2015. Six years ago, in the summer of 2011, after the deal on the debt ceiling achieved by Obama, Standard & Poor’s rating agency downgraded the US government bonds from AAA to AA+.3)Remember the debt ceiling? Here it comes again, Source: CNBC 2017-02-17.
According to Stockman, there is a big chance that President and Congress will reach no agreement on the $20 trillion debt (106% of GDP). Then “the Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion a month rate. By summer, they will be out of cash. Then we will be in the mother of all debt ceiling crises. Everything will grind to a halt. I think we will have a government shutdown.”4)Stockman: “After March 15 Everything Will Grind To A Halt”, Source: Zerohedge 2017-02-27.
Obviously, this would mean no stimulus but fiscal cuts. With expected higher interest rates the US will find itself in the situation of contractionary monetary policy and contractionary fiscal policy: the worst possible combination that can kill the economy. The Fed’s decision may come (as always) too late and may cause a next crisis that will end up with recession in the US. The Trumponomics is going to be over before it even starts, unless Congress announces the everlasting debt limit holidays.
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