“In some decades, nothing happens; in some weeks, decades happen.”
-Vladimir Lenin
This past weekend I penned an article for the Washington Post. In it, I addressed the alarming headlines about Steve Bannon—President Trump’s controversial chief strategist—and apocalyptic reports that Bannon is ushering in World War III. A common thread in these media reports is that he is an avid reader and that the book that most inspires his worldview is “The Fourth Turning: An American Prophecy.”
I wrote that book with William Strauss back in 1997.
It is true that Bannon is enthralled by it. In 2010, he released a documentary, “Generation Zero,” that is structured around our theory that history in America (and by extension, most other modern societies) unfolds in a recurring cycle of four generation-long eras. While this cycle does include a time of civic and political crisis — a Fourth Turning, in our parlance — the reporting on the book has been absurdly apocalyptic.
I don’t know Bannon well. I have worked with him on several film projects, including “Generation Zero,” over the years. I’ve been impressed by his cultural savvy. His politics, while unusual, never struck me as offensive. I was surprised when he took over the leadership of Breitbart and promoted the views espoused on that site. Like many people, I first learned about the alt-right (a far-right movement with links to Breitbart and a loosely defined white-nationalist agenda) from the mainstream media. Strauss, who died in 2007, and I never told Bannon what to say or think. But we did perhaps provide him with an insight — that populism, nationalism and state-run authoritarianism would soon be on the rise, not just in America but around the world.
Because we never attempted to write a political manifesto, we were surprised by the book’s popularity among certain crusaders on both the left and the right. When “The Fourth Turning” came out, our biggest partisan fans were Democrats, who saw in our description of an emerging “Millennial generation” (a term we coined) the sort of community-minded optimists who would pull America toward progressive ideals. Yet we’ve also had conservative fans, who were drawn to another lesson: that the new era would probably see the successful joining of left-wing economics with right-wing social values.
Beyond ideology, I think there’s another reason for the rising interest in our book. We reject the deep premise of modern Western historians that social time is either linear (continuous progress or decline) or chaotic (too complex to reveal any direction). Instead we adopt the insight of nearly all traditional societies: that social time is a recurring cycle in which events become meaningful only to the extent that they are what philosopher Mircea Eliade calls “reenactments.” In cyclical space, once you strip away the extraneous accidents and technology, you are left with only a limited number of social moods, which tend to recur in a fixed order.
Along this cycle, we can identify four “turnings” that each last about 20 years — the length of a generation. Think of these as recurring seasons, starting with spring and ending with winter. In every turning, a new generation is born and each older generation ages into its next phase of life.
The cycle begins with the First Turning… (click here for the entire article)
Back to the Global Macro Grind…
At 9 pm EST tonight, President Trump will deliver his first joint-session address to Congress. After the last bit of bold rhetoric has echoed through the chamber, financial media tea-leaf readers will be trying to give us a better read on Trump's fiscal agenda.
As always, Trump will make it clearer than ever that he intends to do exactly what he has said he will do: boost defense spending (by around 10%); slash discretionary domestic spending by as much as 15% (to compensate for the defense boost); leave entitlements untouched; and cut tax rates. The Democrats will respond with outright hostility. The Republicans, after raucous applause, will be politely noncommittal.
My take? Trump's fiscal program has zero chance of being enacted in anything like its present form. Why? Because the Democrats won't give it a single vote in any event. And a whole lot of Republicans won't support it either unless it's close to budget neutral. And this isn't within light years of budget neutral. Let's see, you're looking at an extra $60 billion/year on defense and then an extra $300 to $600 billion/year lost (average over the next decade) in tax cuts.
The smaller number assumes that Trump would accept the Ryan Plan, which in turn assumes that he would accept the border-adjustment tax (BAT). But Trump apparently is cool to the BAT, as are many Republican Senators and most U.S. business leaders. And gee, I didn't even mention Trump's $20 billion Mexico wall or his $1 trillion infrastructure agenda.
The White House insists it will find huge savings by slashing domestic discretionary. But such slashing will never happen. Keep in mind that this already-shrinking corner of the budget (now only 11%) represents the only federal money spent on actual domestic goods and services--weather, parks, environment, R&D, higher ed, space, federal employees. The rest, other than defense (another 16%), is all just checks in the mail, to individuals, creditors, and state and local governments. Repeal and replace ACA? Increasingly, the "replace" doesn't look like it's going to be much cheaper than the Obamacare original.
Final verdict: Aside from some high-profile whacks (to NPR or Planned Parenthood or the "climate change" division at EPA), there will be no fiscally significant savings in domestic discretionary.
Trump would be having an easier time right now if his approval ratings were higher or if the country were less polarized. (Hey, a couple of Democratic votes would help!) And the GOP in Congress might be giving Trump more near-term running room on deficit spending if he had showed any willingness to support out-year savings in Social Security, Medicare, or Medicaid. But Trump apparently has no interest in such cost savings--despite the fact that they comprise the largest and fast-growing share of the budget. Even in an optimal scenario, entitlement cuts are difficult. Without enthusiastic presidential leadership, they are well nigh impossible.
At best, unless Trump dramatically changes his offer, we are looking forward to extended budgetary gridlock. At worst, we might witness the eruption of open conflict within the GOP, especially once the debt ceiling begins to rear its ugly head next month. Many tea-party stalwarts are already donning their armor.
Since the recent election, the stocks-up, bonds-down Trump Trade has been largely predicated on Trump's ability to push a major deficit-stimulus program through Congress. Now, week by week, that expectation is evaporating. In tandem, the dollar and the 10-year Treasury yield are easing off their earlier highs. The 10-year real yield, yesterday at 0.31%, is the lowest it has been since the election--and is less than half its post-election high (on December 16) of 0.74%.
Today, I suspect, we will see expectations ebb even further as the White House commits publicly to a program it cannot easily walk back. Sure, equities may still keep sailing for a while due to ongoing momentum in the U.S. economy. But as for staying long UUP and short TIP here? You may want to be careful. It's an old story: Go one way on the rumor, reverse on the news. Tonight we get the news.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.31-2.53%
SPX 2
NASDAQ 5
VIX 10.58-12.37
EUR/USD 1.04-1.06
Neil Howe
Demography Sector Head
