The 10th Man

The Return of Porkulus

February 15, 2018

Before we get going, make sure you check out the Episode 14 of The Monthly Dirtcast. We have Brett Topche, managing director of Red and Blue Ventures, a VC fund that specializes in early stage companies from the Wharton school ecosystem. For all the Philly haters, we have a great discussion on why Philadelphia is so great. Tune in.

As most of you know, I used to be in the Coast Guard. I served from 1992-2001, closely coinciding with Bill Clinton’s time in office.

This $5 Trillion Market Is Just Getting Started.

Don’t miss out on the ETF revolution. Get going with this must-read report from Jared Dillian.

Let me tell you about working for Bill Clinton. Everyone hated it. The mantra of the Clinton Administration was “do more with less.” Less travel, less supplies, less everything.

The US government was in deficit-cutting mode. Why? Because politics dictated it. People were freaking out about the debt we had run up during the Reagan years, and the deficit was a top issue in both the 1992 and 1996 elections.

We eventually did eliminate the deficit, with a huge tailwind from capital gains tax revenue during the tech boom. And that was about the time that people stopped caring about it.

Really, the turning point was 9/11. At that moment in time, people were ready for big government to stop terrorism. We created an entire cabinet department to do it—Homeland Security.

Spending on security gradually morphed into spending on everything else. George W. Bush dreamed up the prescription drug benefit in 2003. It was all part of “compassionate conservatism,” but deficit hawks weren’t pleased about being compassionate with other people’s money.

In any event, the deficit stayed manageable throughout the Bush years (3% of GDP or less), so there wasn’t any reason to sound any alarms.

Of course, things changed under Obama during the financial crisis and the huge recession—spending quickly went from 3% of GDP to 10% of GDP.

Larry Summers was Treasury Secretary,—the stimulus (which Republicans called “porkulus”) was classic Keynesian countercyclical fiscal policy. Spend money in bad times, save it in good times.

There was plenty of arguing about how effective the porkulus was. Some people said it had a multiplier of close to one—basically no effect. People still argue about it to this day.

Fiscal discipline was restored when Republicans took over Congress in 2010. Safe to say that Obama would have spent a lot more money if he had the opportunity.

Don’t You Think It’s Weird

Don’t you think it’s weird that everyone was freaking out about the national debt when it was 60% of GDP, but now that it is 105% of GDP, nobody cares?

I think that is weird.

During the 2016 election, nobody campaigned on the deficit. Nobody. Not Bernie, not Hillary, not Trump. Not anyone else in the primaries. Not even Rand Paul! Nobody said we should cut spending. A few people said we should raise taxes… but for social justice reasons, not for budget reasons.

Since the release of the Trump budget this week, people are piping up a little bit about our brand new trillion dollar deficit, but not too much. Why?

The answer is simple. Every other time we worried about it, it turned out to be nothing.

This $5 Trillion Market Is Just Getting Started.

Don’t miss out on the ETF revolution. Get going with The 5 ETF Trading Strategies You Should Know About Before Investing, from Jared Dillian.

What if you ask the man on the street? Say you were one of those local news programs and left your air-conditioned office and went out on the street and interviewed some randos, and you asked them: “Why is it bad when we run big deficits?”

I assure you that not one person would be able to answer your question.

The answer, of course, is: it makes interest rates go up.

And there is a phenomenon known as “crowding out,” where the government gets to borrow before you do. If the government borrows so much that it pushes up interest rates 2%, then your mortgage rate goes up 2%.

It is helpful to consider where interest rates might be if there were no government debt at all.

Anyway, nobody has had to think of this stuff in a really long time. The bond market is acting kind of crappy, so people are thinking of it now.


We’re going through regime change in the markets. And Jared Dillian is warning that most people are going to have to learn the hard way.

The new regime demands flexibility, guile... and a disaster plan. Start honing yours today with The Daily Dirtnap.

Join The Daily Dirtnap Today »



The Implications

I’m willing to say that the bond bull market is over. I’ve said that before, here and here. And other people are coming around to that view.

It is going to be hard work owning longer-dated paper. People have become accustomed to juicy returns on bond funds. Not anymore.

Funny thing about bonds—you get people who predict that we will be in a deflationary depression and get negative rates, and you also get people who predict hyperinflation and skyrocketing yields. You don’t get much in between.

I think that over the next few years, the environment for investing in bonds is going to be moderately annoying. Probably the best you can do is clip coupons, but it will likely be worse than that.

And there is zero political impetus for change at the federal level. We have a future of trillion dollar deficits. And it seems unlikely that a Democrats or a Republican primary challenger will run on the deficit issue in 2020.

We have finally learned what we suspected all along: both parties like to spend money. The best check on spending so far has been divided government, but I’m not even sure that’s going to work going forward.

For fun, go to the CBO website and look at the 2008 estimates for what we would be spending in 2018. It will blow your mind.

Jared Dillian
Jared Dillian


Get Thought-Provoking Contrarian
Insights from Jared Dillian

Discuss This


We welcome your comments. Please comply with our Community Rules.


Feb. 15, 2018, 9:17 p.m.

Final answer - you can NOT get elected running on a debt reduction platform.  Trump gave it lip service but nobody believed him.  Americans are convinced now, more than ever, that those harping on the consequences of more debt are just crying wolf.  So far, they have been right.  It reminds me of all the geologists warning of the big earthquake that is overdue in San Francisco.  Is anybody moving because of that warning - nope!!!!!!!

God help us.

Douglas Aeling

Feb. 15, 2018, 3:03 p.m.

I’m an independent and I oppose deficit spending no matter what party does it.  Democrats are at least honest about their intentions to borrow and spend.  Republicans say they will reign things in, put the house in order, end waste and fraud, or any number of empty slogans.  Then we vote them into power and they act just like Democrats, and make the problem even worse by reducing the revenue side of the equation.  The only difference is what they choose to borrow and spend on.  At the end of the day it doesn’t matter.  Debt for bombs and bullets is just as bad as debt for health insurance or highways.

We’re on an unsustainable path that will only end in tears.  Neither party has the backbone to be blunt about where we really are.  The truth is, if Americans want X (strong military, universal healthcare, glittering infrastructure or whatever), then we should pay for it, 100%.  If we don’t want to pay for it, then we don’t deserve to have it, period.

Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use.

Unauthorized Disclosure Prohibited

The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact


The Mauldin Economics website, Thoughts from the Frontline, The Weekly Profit, The 10th Man, Connecting the Dots, Transformational Technology Digest, Over My Shoulder, Yield Shark, Transformational Technology Alert, Rational Bear, Street Freak, ETF 20/20, In the Money, and Mauldin Economics VIP are published by Mauldin Economics, LLC Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice

Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

© Copyright 2019 Mauldin Economics