Posted on 03/31/2013 8:28:29 AM PDT by billorites
The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.
Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later, within a few years, I predict this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.
Since the S&P 500 first reached its current level, in March 2000, the mad money printers at the Fed have expanded their balance sheet sixfold.
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It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.
That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.
(Excerpt) Read more at nytimes.com ...
I no longer believe that. I think Stockman is smarter than just about everyone on these issues. He has a deep understanding, and should be listened to. His "political" instincts may not be great -- he doesn't say what people want him to say -- but I think he knows the truth.
This guy threw Ronald Reagan under the bus more than once whenever he has been asked about his tenure as budget director. Now he wants to come across as the bi-partisan guy blaming both parties and being above the fray. Another establishment Republican who thinks he knows better than all of us.
You're right. Our government is making things look good by printing money and using it to support markets and hide behind "Market Success."
When this bubble breaks, please remember that today's so-called "Market" doesn't make sense.
The road to hell is paved with good intentions, and that road is precisely what our politicians have us on.
This is a good example. I think he's spot-on about a lot of what he says, but his last sentence is exactly the opposite of what he was saying late last year. At that time, an interviewer asked him where he would advise people to put their money -- and he said (this may be an exact quote): "I'm putting my money in anything that Ben Bernanke can't destroy."
If that were the case in late 2012, then why the hell would he advise people to get into cash in 2013? The U.S. dollar is the one thing Ben Bernanke can destroy more easily than anything else.
What I suspect happened is that he saw commodities such as precious metals as something "Ben Bernanke can't destroy" in late 2012, but the prices for many of these have dropped considerably since then. Simply put, hindsight has shown that his advice back then wasn't very good.
I'm not sure what the answer is, but I don't think it's reall "cash" at this point.
David Stockman is pretty much good these days but lets be real here. He is speaking out only after piling up more than 100 million “doing deals” at Blackstone
Lots on him at wikipedia such as
“Business career
Having left government, Stockman joined the Wall St. investment bank Salomon Brothers and later became a partner of the now very successful New York–based private equity company, the Blackstone Group.[11] His record was mixed at Blackstone, with some very good investments, such as American Axle, but also several large failures, including Haynes International and Republic Technologies.[12] During 1999, after Blackstone CEO Stephen A. Schwarzman curtailed Stockman’s role in managing the investments he had developed,[13] Stockman resigned Blackstone to start his own private equity fund company, Heartland Industrial Partners, L.P., based in Greenwich, Connecticut.[14]”
He diagnosed many of the problems and many of the solutions. The following though is a clear indication which part of the political spectrum he currently inhabits: “at the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent.”
Sounds like his words came straight from the DNC! Of course, this does not invalidate what he’s saying. However, since he attacks Congressman Ryan, why didn’t he mention Pelosi or Dodd or Frank even once?
Stockman’s account of the closing of the gold window omits the point that, at the time, France was insisting on converting its dollar holdings to gold on a large scale — and at an artificially low price that resulted in the US taxpayers transferring wealth to France and funding its budget deficit.
Yes, but it was an artificially low price because the US had overspent and expanded credit to the point where it could no longer pretend the dollar was convertible to gold at $35/ounce. In other words, it was US policy which made the price artificially low, and France called the US Treasury on it. Of course it would have been to France's benefit, but eventually someone was going to point out that the Emperor's (i.e., US') gold pants were wearing thin.
We need separation of government and business.
First, the monetary issues. When gold is used as an express and convertible monetary base for national currencies -- the gold standard -- bullion bars of the heavy yellow metal held in the national bank and treasury become high powered money. This in turn makes changes in national monetary gold holdings destabilizing unless national currencies are expanded and contracted and relative values adjusted to reflect additions and subtractions to national monetary gold reserves.
During the Depression, the US and the world experienced wide scale contractions in the net global monetary base. This led to a general deflation that made debts more onerous and currency more dear, suppressing economic activity and deepening the Depression.
In part, this was due to the policy of the US and France to accumulate monetary gold reserves without expanding the stock of their national currencies. Thus the dollar and franc rose in value, making imports cheaper and overseas private investment and financing more lucrative for the US and France, while diminishing the finances and economies of other nations.
During the Depression, going off the gold standard freed countries to more readily adjust the stock and value of their national currencies. Nevertheless, the inherent value of gold continued and remained a tacit element of national economic strength. During WW II, Nazi Germany scoured up gold throughout Europe and, in transactions with the Swiss, the Swedes, and other economic partners, used it to fund their war machine.
After the war, with Western Europe depleted of national gold reserves, general reestablishment of a gold standard for key US allies and economic partners was out of the question for that reason alone. Moreover, the experience of the Depression cautioned that a gold standard could be economically dysfunctional unless economic and financial policies were also coordinated. Free nations tend to be unwilling to do that on a suitably comprehensive basis.
Yet gold retained inherent value that made gold holdings by national governments closely monitored by the public and financial decision makers. The postwar financial system crafted by the US and its allies accommodated these conflicting demands by establishing the dollar as a primary reserve currency, but with lending to our allies through the IMF and access to US national gold stocks at a preset price. Implicitly, US gold reserves were thus pledged as backing for the dollar at a nation to nation level.
This postwar arrangement helped to institutionalize US economic and political power and stabilize the economies and governments of our allies. In time though, the nominal gold price became increasingly out of kilter as Europe recovered and the global economy expanded. Moreover, the French -- why is it always the French? -- demanded gold from the US at the discounted nation to nation price and sold to its public at the higher market price.
In effect, the US was funding France's national budget as the French government turned a tidy proprietary profit on its gold sales. Meanwhile, France reduced its participation in NATO, courted the Soviets as a counter to US influence, and generally made nuisances of themselves at the UN by often putting their Security Council vote up for bid.
Raising the price of gold, limiting gold transfers from the US, and eventually, dropping gold convertibility helped the US strengthen its economic and strategic position, fund its domestic budget deficits, preserve its national gold stocks, and win the Cold War. Notably, virtually limiting gold as being of value as a monetary base weakened the Soviet economy because it diminished the economic and strategic value of their massive gold deposits.
In sum, although the gold standard has deep intuitive appeal for many conservatives, libertarians, deficit hawks, and sound money advocates, most of the arguments are contradicted by the history and economics of gold. As appealing as gold is, the gold standard is not some sort of Deus Ex Machina that can be made to descend from the clouds and cure us of bad public policy. Nor was dropping the gold standard an original sin that drove us to bad decisions.
To Rockingham. Thank you for your post. There is not perfect solution, conservatives can be as idealistic as liberals.
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