Trumped! Washington’s Fiscal Hypocrisy Is Too Rich For Words

David Stockman’s Contra Corner,

You have to love it when one of Donald Trump’s wild pitches sends the beltway hypocrites into high dudgeon. But his rumination about negotiating a discount on the Federal debt was priceless.

No sooner did the unschooled Trump mention out loud what is already the official policy of the US government than a beltway chorus of fiscal house wreckers commenced screaming like banshees about the sanctity of Uncle Sam’s credit promises.

Let’s see. For 89 months now the Federal Reserve has pounded interest rates to the zero bound because come hell or high water the US economy must have 2% inflation in order to grow and prosper. Other than a handful of rubes from the Congressional hinterlands, there is nary a Washington operative from either party who has questioned the appropriateness or effectiveness, let alone the sanity, of Bernanke-Yellen’s 2% inflation totem.

That means, of course, exactly 30 years from today investors would get back 54.5 cents in inflation-adjusted money per dollar of principal on 30-year treasury bonds if the Fed hits its sacred targets.

If that’s not default, it is surely a deeper “discount” than even the Donald had in mind while jabbering to CNBC about his years as the King of Debt.

Oh, yes, the monetary geniuses who peddle the 2% inflation gospel claim we are all in it together. That is, prices, wages, profits, rents and even indexed social benefits allegedly all march upwards at 2% per year, and, save for minor leads and lags in timing, no one is financially worse for the wear.

C’mon. That’s rank poppycock. The truth is, savers get killed and borrowers get windfalls; the wages of upper-end workers keep up, while the purchasing power of paychecks lower down the ladder shrinks continuously; social security recipients get recompense, private pensioners get shafted. Yada, yada.

Moreover, the biggest windfall harvesters of the Fed’s deliberate debt default policy are the leveraged gamblers of Wall Street and the clueless debt-addicted politicians of Washington.

Even if you grant that the latter have no inkling that the savings function is the key to capitalist prosperity, they do spend a goodly amounted of time waxing about their endless affection for America’s working people. Why Governor Kasich never finished a single GOP primary debate without claiming he understood how to improve the US economy because he father was a mailman.

So take a look at the graph below on real wages since the Fed went full tilt with the printing press in 2007. This is not a picture of 2% lockstep.

Less educated and lower wage workers have experienced shrinking real wages and for a self-evident reason. On the margin, they are more exposed to the lower nominal wages of foreign goods and services competitors than are workers on the upper end of the jobs and income ladder.

Indeed, 2% inflation is the very opposite of the Keynesian lockstep claim. It’s incidence among economic agents and classes are actually capricious and inequitable in the extreme.

In fact, it is a grand policy scheme of random monetary default. But since the Donald had the temerity to broach the topic—whether by inadvertence or by purpose—–the spendthrifts of the Imperial City are now scrambling to smother us in a verbal blanket of phony fiscal rectitude.

education-wages_small Trumped! Washington's Fiscal Hypocrisy Is Too Rich For Words

In that regard, there are few more noxious precincts of statist fiscal hypocrisy than that occupied by the ranks of scribblers and bloviators at Politico.

By the lights of these folks, everything that has been done in the Imperial City these last several decades should have been done. Certainly, there is no fiscal crisis that might warrant radical ideas like those proffered by Trump.

Why Obama, the Fed and the Congress actually saved the country from Great Depression 2.0 in 2008-2009. Since then, in fact, we have been marching resolutely toward economic recovery and fiscal stabilization.

No, not even close. There has been no meaningful economic recovery and the fiscal condition of the nation is frightful.

As to the former, there are still fewer full-time, full-pay “breadwinner” jobs than before the crisis. Likewise, the median household’s real income is still far lower than when the previous Clinton was shuffling out of the White House In January 2001.