David Stockman was Ronald Reagan’s first budget director. He resigned because he thought Reagan’s program would produce a huge deficit. He was right. Reagan is the father of the triple-hundred-billion dollar deficit.
He thinks the U.S. federal debt is a disaster. It will produce an economic disaster.
Stocks will fall. Bonds will fall. Taxes will be raised. There will be inflation.
What does he own? Gold and Treasury bills.
Q: Why are you so down on the U.S. economy?
A: It’s become super-saturated with debt.
Typically the private and public sectors would borrow $1.50 or $1.60 each year for every $1 of GDP growth. That was the golden constant. It had been at that ratio for 100 years save for some minor squiggles during the bottom of the Depression. By the time we got to the mid-’90s, we were borrowing $3 for every $1 of GDP growth. And by the time we got to the peak in 2006 or 2007, we were actually taking on $6 of new debt to grind out $1 of new GDP.
This cannot go on. It created bubble economics. The bubble has popped.
What about unemployment? Bad news. “The 131.7 million (jobs in November) was first achieved in February 2000. That number has gone nowhere for 12 years.”
Another measure is the rate of investment in new plant and equipment. There is no sustained net investment in our economy. The rate of growth since 2000 (in what the Commerce Department calls non-residential fixed investment) has been 0.8 percent — hardly measurable. . . .
We’re stalled, stuck.
Central bank inflation is behind this economy.
If the central banks ever stop buying, or actually begin to reduce their totally bloated, abnormal, freakishly large balance sheets, all of these speculators are going to sell their bonds in a heartbeat.
That’s what happened in Greece.
He says that the FED is simply a patsy for Wall Street. “Everything (it does) is designed to keep this rickety structure from unwinding.”
Q: You sound as if we’re facing a financial crisis like the one that followed the collapse of Lehman Brothers in 2008.
A: Oh, far worse than Lehman. When the real margin call in the great beyond arrives, the carnage will be unimaginable.
Here is how the interview ended.
Q: Are you hopeful?