The Coming Fiscal Derailment - Why FY 2019 Will Sink The Casino

Worse still, the RUT companies are apparently borrowing money to pay even that miserly 1.35% dividend.

That's right. Net income during the LTM period was slightly under $42 billion or just two-thirds of the RUT's dividend payout. So this also means that America's main street businesses are being valued at a preposterous 107X earnings.

(Click on image to enlarge)

^RUT Chart

These absurd valuations would be troublesome enough if the fiscal and monetary context were stable rather than heading for a thundering dislocation. But there is no other word for a fiscal equation which is unraveling at lightening speed as we head for the onset of FY 2019 next October 1.

Under the CBO's baseline projection of last June, the picture was already bad enough. Federal outlays were projected to rise from $4.0 trillion in the year just ended (FY2017) to $4.38 trillion in FY 2019. Notwithstanding revenue growth of 11% under current law over the two year period, the resulting baseline deficit still computed to nearly $700 billion.

But Trump has already signed into law a defense authorization bill which will raise baseline outlays from $625 billion to $700 billion. And on top of that, the House yesterday approved an $81 billion disaster aid supplemental for the hurricanes and wildfires, which will bring total spending for this year's disasters to a staggering $133 billion.

That's vastly more than the $51 billion spent for Hurricane Sandy or the Katrina outlays of $60 billion. More importantly, the Congressional Republicans are not contemplating any off-setting cuts elsewhere in the Federal budget----a sharp reversal from their traditional insistence to that effect.

Indeed, the disaster fix is already in and will be attached to the next two-week installment of the FY 2018 continuing resolution (CR).

The fact that the Federal deficit is soaring and was already up by 75% in the year just ended compared to FY 2015 has apparently not registered with the Republican leadership. And that's to say nothing of horrific timing: Upwards of half of the $133 billion of disaster aid will hit in FY 2019 at the exact time that the GOP's front-loaded tax cut ($280 billion) will also arrive with full force.

As Bloomberg noted with respect to the disaster aid bills, fiscal rectitude is not the GOP's flavor of the month. For instance, the "ask" of $61 billion for disaster aid from conservative Texas governor Gregg Abbott is more than has ever been spent on any previous disaster in US history.

Likewise, the Florida GOP is seeking $1.5 billion for damages suffered by the citrus industry when Irma came roaring across the peninsula. That's especially rich because hurricanes are surely a known cost of doing business in Florida, and orange and lemon producers ought to buy insurance or self-insure, not ding taxpayers in Fargo North Dakota.

In any event, as Bloomberg explains below, the GOP's stalwart conservatives from Florida, California and Texas are on the case because this time is apparently different:

The aid likely would be attached to a government spending bill that must be passed this week to keep the government open after Friday. The disaster spending is being pushed forward by Republicans from Texas, Florida and California who threatened to oppose the spending bill if hurricane relief wasn’t included......“The dollar figures I hear are fine," said second-ranking Senate Republican John Cornyn of Texas. "How it’s distributed may need some changes".

House Rules Committee Chairman Pete Sessions of Texas predicted that conservatives will support the bill, despite a lack of offsetting spending cuts, because they understand the urgent need for aid. The Texas port on the Gulf of Mexico, through which military armaments pass, is "still in shambles", he said.

Florida has requested $1.5 billion to help its citrus industry recover from hurricane Irma. Texas Governor Greg Abbott has requested $61 billion in aid for his state, while officials in Puerto Rico have sought $94 billion.

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