Posted on 10/09/2010 5:24:46 PM PDT by Atlas Sneezed
“I invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries," David Stockman tells Jennifer DePaul of the Fiscal Times.
Stockman rose to fame as a Hayek quoting Congressman who became Ronald Reagan's budget director. His conversations with journalist William Greider created a firestorm because Stockman was deeply critical of the Reagan administration's supply-side budget practices. These days he's working on a book about the financial crisis.
I can't find anything to argue with in his assessment of our current troubles:
We are not in a conventional business cycle recovery, so stimulus is futile and just adds needlessly to the $9 trillion of Treasury paper already floating dangerously around world financial markets. Instead, after 40 years of profligate accumulation of public and private debt, and reckless money-printing by the Fed, we had an economic crash landing, which left us with an enduring structural breakdown, not just a cyclical downturn.
In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion which represented a 3.6X leverage ratio against national income or GDP. By contrast, during the 110 years prior to 1980, our aggregate leverage hugged closely to a far more modest ratio at 1.5 times national income.
The only solution is a long period of debt deflation, downsizing and economic rehabilitation, including a sustained downshift in consumption and corresponding rise in national savings.
(Excerpt) Read more at cnbc.com ...
Isn't debt deflation another term for inflation?
One of the good things about being broke is I don’t have to worry about where not to invest. I invest only in lead. Much more bang for the buck than gold.
Some people believe that there is so much bad debt that you could not even print your way out of it.
No. The dollar increases in value due to debt deflation, which is one of the problems. It exacerbates the problems of those whose existing contracts are denominated in lower value dollars.
Jim,
If you can afford lead, at least you ain’t truly broke!
Not necessarily. “Debt deflation” just means that the outstanding credit in the monetary system is reduced. There are several ways that a debt bubble can be reduced:
1. Inflation, especially when the debt is owed externally. This is why South American and other third world nations choose their route when they have huge debts to the US or UK. Or why Germany underwent inflation when paying reparations to France and the UK.
2. The debt is written off and the lenders take a loss. This is what happens when a company or individual declares bankruptcy under Chapter 7. The company or individual has to liquidate what they have that isn’t essential, the creditors are paid off in order of their priority of claim. Some creditors get paid nothing, others might get only pennies on the dollar. Either way, the debt is no more, the debt is just gone.
3. Debt renegotiation - eg, spreading the debt load out, reducing interest payments, etc. Now the creditor is still taking a loss, but a lower loss than a Chapter 7 BK might afford the lender. The net present value of the loan (which banks categorize as an asset) is significantly reduced in many cases, especially if the loan had a high interest rate that is negotiated down.
Inflation won’t work this time. The Fed owns $1.2T of mortgage-backed debt, another $330B+ of US Treasury debt, and billions more of bank debt that they took off Wall Street’s hands (see the Maiden Lane transactions if you’re curious). If the Fed tries to inflate its way out of the debt crisis, the Fed itself takes huge losses. I’m not saying that Bernanke won’t try inflation, but he’d have to either have negotiated the devaluation of the Fed’s debt portfolio with member banks, or he has a villa in some far-off country to which he will escape when the bankers come for him with pitchforks and torches.
I know you face extra challenges but please do make time to practice.
Supply side would have thoroughly worked if spending was not baselined, entitlements were cut and the redundant and useless agencies were ultimately sunsetted. Just simple reform would have made the ponzi scheme known as Social Security solvent. But whenever the government hydra is confronted by conservatives the media and leftist scream like gutted rabbits. All programs and all corruption were sacred.
Ronald Reagan’s administration’s push to cut entitlements (which are not mandated by the constitution) was thwarted at every turn by the leftist, the media, RINOs, and and finally by public opinion molded by leftist media. It was and is the entitlements that bloat all government deficits.
The only sector of the government the left wish to cut and destroy is defense, whether it is the local sheriff’s budget or # of ships in the US Navy.
Yet, the leftists are first to use the loss of cops and armed personnel as examples of why the govt should always tax more for their entitlements. They’re rotten, lying, b@stards.
David Stockman should know this context. He lived it. Stockman was hated before Newt or Rove as the worst person on earth to leftist, statists, and the elites.
So when David made derisive comments on the effectiveness of tax cuts and the Reagan years a few years ago, most conservatives scratched their heads.
But now Mr. Stockman wants to go back and play with our side again. David opines that the Bernanke method is killing us. Bernanke is killing us. I agree.
Before anything, we need to overturn Obamacare. Second, we need to make the tax cuts permanent. We need to end the Fed’s control of the economy and overturn the 2010 act that gave the Fed unnatural, unconstitutional, and fascist powers over our economy. And finally, we need a new Omnibus Spending Act that balances the budget, sunsets entitlements, and finally addresses the horrible corruption in this monster government spending.
And Mr. Stockman, it would be swell if you returned to your neo-classical economic roots, rolled up your sleeves, man-up, and help us make it a reality.
You are getting quite proficient at the new trickster vocabulary.
Nam Vet
Amen to that. I don't owe anything and I have everything I need... except a retirement plan/pension.
notice he says we need savings.
And the fed is talking about inflation to stop people saving.
Bernsnke is a fool, so it is wise to consider getting out of cash.
Old habits die hard, however.
He seems like a slick sociopath from glancing though the biographical material on FR search engine, particularly this post from 2007:http://www.nytimes.com/2007/04/15/business/15stockman.html?_r=1&hp=&pagewanted=print
“Since his days as a Marxist firebrand in the 1960s, Mr. Stockman, now 60, has had a weakness for ideas that fired his ambitions.”
“Mr. and Ms. Stockman, who is co-chairwoman of the Republican Majority for Choice, an abortion-rights group, say that friends have reached out to them”
Another post from earlier this year :
The Bush tax cuts are “unaffordable,’’ he says. Extending them would be a “travesty.” :http://www.freerepublic.com/focus/f-news/2602801/posts
BTW in a post earlier this year, not searchable by keyword or title, it is stated that the case brought against him ended in a deal costing him mega-millions, yet he minimized it saying that nothing had been proven.
Fight the power!
If my memory serves me good, Stockman called Reagans economic policy Voo Doo Ecomonics and that was when he was still in the Admin...
The most dangerous man in the world is the one with nothing left to lose.....you be that man....:O)
Best check to see if your retirement plan owns any of the securitized debt obligations. You may find you own some of the same things Fannie/Freddie owns....unsecuritized creidit obligations. A lot of people who have worked hard all of their lives will get ready to retire only to find their retirement went up in smoke with the subprime credit default swindle by JP Morgan, Bank of America, and especially Goldman Sachs. This is an unbelievable mess which has no remediation.
About all that spending.
The Austrian school says that two things happened.
1. Through taxation, and even bond selling, the gooberment pulled money out of the private economy.
2. The gooberment, through laws, tax breaks, politics mal spent, ‘invested’ in old, poor, no to low return capital.( Think Willie Green and his neo-Stalinist desires to return to the glory days of big iron railroads. It’s not what people want, even if you pay them( partly ).)
3. The Federal Reserve company, which had socialist, central planning of the money supply( Think of your local, city municipal departments for quality operations. The Fed is the money municipality for the country ), kept through the Dot Com bust, and others, money too lax, and it was ‘invested’ in again, old, unimaginative, non economy desired things, like excess codos, housing.....
So, now we have a totally street-crack-junky cripple economy, all twisted and distorted. And what do the junk, crack, fiat paper Doctors suggest? More crack!
Right now, with spending( distortion ) at an all time record, we are shooting the last, dirty mattress, room by the hour stimulas. Mr. Junky is not getting off the floor.
The T.E.A party is the family saying no more money, no more handouts. Either the government wakes up to it’s addiction problem, or politics will be decided in the streets amongst the people themselves.
About all that spending.
The Austrian school says that two things happened.
1. Through taxation, and even bond selling, the gooberment pulled money out of the private economy.
2. The gooberment, through laws, tax breaks, politics mal spent, ‘invested’ in old, poor, no to low return capital.( Think Willie Green and his neo-Stalinist desires to return to the glory days of big iron railroads. It’s not what people want, even if you pay them( partly ).)
3. The Federal Reserve company, which had socialist, central planning of the money supply( Think of your local, city municipal departments for quality operations. The Fed is the money municipality for the country ), kept through the Dot Com bust, and others, money too lax, and it was ‘invested’ in again, old, unimaginative, non economy desired things, like excess codos, housing.....
So, now we have a totally street-crack-junky cripple economy, all twisted and distorted. And what do the junk, crack, fiat paper Doctors suggest? More crack!
Right now, with spending( distortion ) at an all time record, we are shooting the last, dirty mattress, room by the hour stimulas. Mr. Junky is not getting off the floor.
The T.E.A party is the family saying no more money, no more handouts. Either the government wakes up to it’s addiction problem, or politics will be decided in the streets amongst the people themselves.
So long as there are trees and ink, everyone will get paid. It won’t be worth much, if any, but the paper pushers will make sure you get the right amount of wood pulp with correct symbols on it.
With in the US, the rest of us can be forced to take it, but outside the us, not so much. This is why since 1986 the dollar has lost half it’s value and oil costs twice as much dollars, and other things.
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