Remove And Replace

The Donald is on a tweeting tear and he hit the bull's eye squarely on this one. We are talking about his recent takedowns of Senate Leader McConnell, but believe these missives go way beyond remonstrating upon the Senate's abysmal failure on ObamaCare.

Folks, Mitch McConnell was born and bred in the Swamp insofar as his career is concerned. He went to Washington DC 53 years ago at age 22 as an intern for Senator John Sherman Cooper from his home state of Kentucky and never really left. After a succession of jobs on Capitol Hill and in the Ford Justice Department, he got himself elected county commissioner back home and then to the U.S. Senate in 1984.

Thirty-three years in the most polluted part of the Swamp---the U.S. Senate---is a long time. The Senator is veritably pickled in its politically putrid brine. In fact, insofar as we can tell he's never had an honest job in his life outside of drawing a stipend from the public till.

So we don't blame the Donald one bit for calling a spade a spade. ObamaCare is a Welfare State monstrosity of a type that only the permanent political class of Washington could concoct. It is no wonder that all one of the latter's reining graybeards could come up with to fix it was ObamaCare Lite, and then failed to pass even that.

Indeed, seven years of hypocritical fulminations from the Congressional GOP has been embarrassingly outed by seven months of utterly incompetent leadership from McConnell and his House counterpart, Speaker Paul Ryan. That's the truthful essence of the Donald's tweets:

Senator Mitch McConnell said I had "excessive expectations," but I don't think so. After 7 years of hearing Repeal & Replace, why not done?

Can you believe that Mitch McConnell, who has screamed Repeal & Replace for 7 years, couldn't get it done. Must Repeal & Replace ObamaCare!

On account of speaking truth to power in this unabashed and utterly atypical manner, of course, the President is being roundly criticized by the beltway media chorus for stepping on his own agenda.

But we think that's beside the point. Trump doesn't really have a comprehensible policy agenda, and the tropes which pass for one---repeal and replace and his ever more "fantastic" tax cut---would be impossible to enact at this stage of American history even if the Oval Office were occupied by a legislative wizard like Lyndon Johnson.

That is to say, the Imperial City is now stuck to the nation's $5 trillion per year Health Care/Welfare State tar baby. It has no legislative capacity to curtail or reform the latter, as was so starkly portrayed in the ObamaCare repeal farce.

For crying out loud, the failed "skinny bill" in the Senate did little except to repeal the individual mandate, thereby enabling younger, healthier people to refuse the serfdom of ObamaCare's community ratings and to avoid making forced draft subsidy payments to older, less healthy people (who should pay for their own care, including saving for their golden years during their working period). Yet McConnell couldn't even deliver that.

At the same time, there is also no consensus whatsoever on how to pay for the rapidly ballooning, demographically driven costs of this $5 trillion leviathan ($3 trillion of quasi-socialized health care plus $2 trillion of other non-medical entitlements like social security and foods stamps). That's why the great Fiscal Blood Bath is coming down the pike and why McConnell's chiding of the President about being too eager and too demanding was such a laughable non sequitur.

"Now our new president, of course, has not been in this line of work before and I think had excessive expectations about how quickly things happen in the democratic process ..

... And so part of the reason I think people feel we're underperforming is because too many kind of artificial deadlines, unrelated to the reality of the complexity of legislating, may not have been fully understood."

In fact, it's not about faster or slower at all; it's about a stupefying stalemate in the Imperial City that is a clear and present threat to the hideous bubbles on Wall Street and the deeply impaired national economy that has resulted from three decades of madcap monetary central planning.

As of August 8, the U.S. Treasury's cash balance was just $152 billion and that will be virtually gone by October 1. Thereafter will commence a legislative free-for-all over increasing the debt ceiling from its current $19.8 trillion level that will take weeks---even months---to resolve. And the Donald will end up in the cross-fire, clueless about which way to go, but tweeting heatedly about whatever comes to his mind.

On the one hand, the Goldman plenipotentiaries in the White House---Steve Mnuchin, Gary Cohn and their patron, Jared Kushner---are steeped in the conventional wisdom. Namely, that it is the sacred duty of Washington to pay each and every bill incurred by an out of control fiscal system in which upwards of 85% of current outlays result from automatic entitlements (passed decades ago) or other commitments made years earlier (such as paying $40 billion worth of bills for three useless Gerald Ford class aircraft carriers that were obligated years ago).

In this baleful formulation, the debt ceiling is held to be meaningless---and must therefore be raised for every dollar obligated in excess of current revenues. As such, it is reduced to the status of a mere historical relic to be increased in a pro forma manner.

The implicit corollary of the establishment view, however, is that the Federal budget is a doomsday machine because the plain fact is that the U.S. Congress cannot and will not change a material entitlement. In fact, there has not been a single meaningful entitlement reform since the mid-1990s when AFDC was overhauled, but that program never amounted to a hill of beans dollar-wise, anyway. It currently accounts for less than 40 hours of annual Federal spending.

Accordingly, the Freedom Caucus is absolutely correct in stoutly insisting that the debt ceiling is the one and only available brake on Washington's fiscal doomsday machine; it therefore must not be raised by a single dime unless accompanied by big spending cuts and entitlement reforms.

It is also correct in noting that the President has massive leverage to use the debt ceiling to force spending retrenchment because he can prioritize incoming bills and allocate available revenues to the highest purposes such as paying interest on the debt, meeting the military payroll and readiness needs, sending out social security checks and considerably more.

Still, on a year-to-date basis spending is running at $325 billion per month versus revenues at $270 billion per month. That amounts to a 17% shortfall, and it is exactly what would need to be deferred (i.e. shoved into the unpaid accounts payable drawer) during a debt ceiling hiatus.

Needless to say, the pigs would be squealing if they ended up in the payables drawer. There would be highway builders, dairy farmers, municipal transit authorities, EPA consultants, NIH grantees, NASA contractors, SBA borrowers, rural electric coops, national park vendors, weather service forecasters, Army Corps dredge operators, 4-H Club agents and a Noah's Ark more---all noisily and indignantly demanding their payments. Under that scenario, the President's power to extract changes to entitlements and other mandatory commitments in return for releasing the overdue cash would be downright awesome.

And that's why the Imperial City's fear and loathing for prioritization and allocation knows no limits. It's also why any attempt to go in that direction would fracture the so-called GOP majority right down the middle. The Freedom Caucus and conviction conservatives would support it enthusiastically, while the Washington careerists like McConnell would attempt to sabotage it every step of the way---leaving the Donald stranded with his Twitter account in no man's land.

But he will be there soon enough anyway because his Goldman contingent will push him to open the bidding with a call for a "clean" debt ceiling bill and a bipartisan coalition to pass it. Yet neither the White House nor the boys and girls and robo-machines of Wall Street have a clue as to how deep the anti-Trump venom is in the Imperial City and especially among the Democrats.

In return for votes on the debt ceiling, Chuckles Schumer and Nancy Pelosi will demand a bailout of ObamaCare (via funding the insurance company subsidies), repudiation of the Mexican Wall, no tax cuts for the "rich" and no defunding of planned parenthood, among many toxic others. That is to say, a complete betrayal of the entire Trump/GOP platform, such as it is.

It goes without saying that everything in present day Washington leaks almost instantly. Accordingly, as Trump's politically tone-deaf duo of lifelong democrats, Mnuchin & Cohn, begin their exploration of a "deal" with the Hill's bipartisan elders, Fox News and the right-wing alternate media and talk radio shows will be rife with rumors of perfidy and betrayal. The reaction is likely to be especially shrill if the deal centers around a Obama-Boehner style suspension of the debt ceiling until after the 2018 election.

That's because the Dems would never bailout Trump's chestnuts in this manner without an iron-clad commitment that Reagan-style tax cuts are off the table, and that any corporate rate cut and repatriation of the purported $3 trillion of foreign cash be hemmed in with regulatory mandates---requirements that it be used for domestic investment and jobs. By contrast, Wall Street remains lathered-up about the corporate rate cuts because the punters think---based on past experience and economic logic---that it will be used for stock buybacks and elevated dividend payments.

In short, the impending debt ceiling battle will amount to the mother of all political conflagrations. There simply is no clean, drama-free way forward. Instead, there will be an extended ordeal of bumps and grinds and showdowns, shoutdowns and shutdowns that will make the ObamaCare repeal contretemps look tame by comparison. And that will finally spook the insouciantly entitled gamblers and titans of Wall Street into a stark realization.

To wit, not only is the Trump Stimulus a pipe dream, but the fact is there is no functioning government in Washington at all on fiscal and economic policy---even as the Fed has benched itself after an extended orgy of money printing. Indeed, the debt ceiling battle will clarify why it's already too late for a pro-growth economic policy---and that the order of the day will be an unending, discombobulated struggle to pay the bills of a Welfare State and Warfare State which have gone to seed.

But as they say on late night TV---that's not all. In the process of alternating tweeted-taunts at Kim Jong-un and Leader Mitch McConnell Trump has finally shown his true colors. And we are not referring here to his higher instincts to function as the Great Disruptor and scourge of the Imperial City status quo.

Instead, we are referencing the man's incredible self-absorption, juvenile impetuosity and utter lack of self-discipline. These characteristics are bad enough anywhere, but in the crucible of the Oval Office they are fatal.  Yet with each passing day the Donald is self-propelling towards his own doom.

That is, we are quite sure that he will lose whatever remains of his credibility and equipoise during the upcoming debt ceiling battle. His temper tantrums and tweet storms will metastasize into what the beltway rulers will judge to be a 25th Amendment incapacitation.

It won't take a lot of hammering from CNN or the New York Times, either. That's because the Debt Ceiling imbroglio will trigger a stock market crash, and the latter, in turn, will catalyze a replay of the C-suite massacre of jobs and redundant assets like that during the fall and winter of 2008-2009.

Needless to say, the Congressional GOP will panic in the face of that scenario: Nothing accomplished on their election promises and a new financial crisis and recession to boot. Along with the Dems, there will be more than the requisite two-thirds vote needed to fire up the White House helicopter for the Donald's farewell ride home.

As this scenario plays out in the months ahead, the real tragedy is that the statist time-servers like Mitch McConnell will get the last laugh.

After all, "remove and replace" is what they had in mind all along.

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.