Trump Has Inherited
a Terrifying Problem by Mark Nestmann
| February 4, 2017
Every president inherits
Some problems are simply out of the incoming
Obama inherited a financial crisis. Reagan
inherited double digit inflation. Kennedy, Nixon, and Ford
each inherited the Vietnam War.
For President Trump, it’s debt.
Donald Trump enters the White House with
a $19.9 trillion a headache. In percentage terms, that’s
107% of our GDP.
Sure, every president inherits some kind
of debt from his predecessor. But none of them had to follow
the Borrower-in-Chief, Barack Obama. Obama doubled the federal
debt during his tenure in the Oval. He pushed the total
debt close to $20 billion – an 88% rise from when he first
took the oath of office.
Here at the Nestmann Intelligence Unit,
this figure weighs heavily on our minds. Especially as we
watch the Dow fly past the 20,000 mark to its historic high.
The markets are excited by Trump’s promise
of tax cuts, slashed regulations, and job growth. But with
the debt at a record high, we’re worried that Trump will
find himself choked by a lack of funds.
What happens to the market if the president
can’t make good on his business policies?
The Market Is Pricing the Second
Coming of Ronald Reagan
Reagan’s former budget director, David Stockman,
is worried. He says the markets are anticipating a return
to Reaganomics. A return to unrestricted competition and
But he says, “There’s no reincarnation coming.”
The key difference here is that Reagan had
room to move. When he entered the White House, Reagan had
to wrestle with only $1 trillion of debt. A mere 30% of
the GDP to President Trump’s 107%.
Worse, on March 16, Congress will impose
a new debt ceiling. The ceiling is expected to come in at
$20.1 trillion. That leaves Donald Trump slammed up against
the debt wall. There will be no more room to borrow, putting
Trump’s ambitious plans at risk.
Stockman predicts a bloodbath. The debt
ceiling will act as a reality check for the markets, he
says. That could mean a sharp reversal from these historic
Trump Has Bills to Pay…
The president has ambitious plans for America,
but they won’t come cheap.
Chief among them are a trillion-dollar infrastructure
program, a border wall with Mexico, and increased defense
spending. At the same time, he’ll treat Americans to a sizable
tax break. It’s a welcome policy, but it may leave a hole
in the country’s piggy bank.
Trump has also pledged to leave Social Security
and Medicare untouched, the two biggest drains on the budget
outside defense. “I will do everything within my power not
to touch Social Security,” he said.
But if Trump is to reconcile his infrastructure
spending and tax cuts, he’ll need to find money somewhere.
To make matters worse, the Fed is raising
interest rates. As many as three further hikes could be
in the pipeline this year. Obama was lucky enough to ride
the wave of low rates. Trump will enjoy no such luxury.
With higher interest rates comes higher inflation and larger
The Good News…
… is that President Trump has outlined a
vision for reduced spending.
He’ll employ a freeze on federal hiring
with a view to cutting 20% on staffing costs. A further
10% will disappear on cuts to wasteful departments and programs.
Meanwhile, the president’s commitment to job growth should
bring tax dollars back into the pot.
Whispers of a $10.5 trillion cut in federal
expenditure over the next 10 years are moving through the
White House corridors. However, it remains to be seen exactly
where this will come from. And whether it will be enough
to bring down the deficit.
The big test will be the president’s inaugural
budget. It will offer the first clue as to whether he can
balance this knife edge.
President Trump Is the King of Debt
On the campaign trail, Donald Trump hailed
himself the “King of Debt.” He said, “I’m great with debt…
I’ve made a fortune by using debt, and if things don’t work
out, I renegotiate the debt.”
Well, he’s now got his hands on the biggest
debt pile on the planet. And he faces a challenge to keep
it in check.
If the US defaults on its repayments, we
may witness the greatest recession the world has ever seen.
Of course, a default is unlikely. Instead,
we may see the stirring of the printing press starting up
again (also known as quantitative easing) as fresh new dollars
are used to pay down the credit (reducing your purchasing
power with every print run).
Even worse, the Treasury might just “borrow”
funds from the Federal Employee Pension Fund to avoid defaulting.
If you think that sounds terrifying and unthinkable, consider
this: They’ve done it before.
Time to Create a Plan B
Thanks to Obama’s reckless attitude with
the nation’s credit, President Trump may be choked by the
debt crisis. It could limit his ability to put his ambitious
policies to work. And that may cause the markets to sharply
reassess their enthusiasm.
Worse, Trump may be forced to take extraordinary
measures to keep the debt sustainable. Measures that threaten
your nest egg.
While it’s impossible to time the markets
or predict the future, it is possible to take control of
your wealth. Perhaps it’s time to create a strategy that
spreads your risk and reduces your exposure to the US debt