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David Stockman On The Fed's Path Of Destruction

Tyler Durden's picture


David Stockman concludes his two part series on Crony Capitalism (part one here) with this scathing take down of the Federal Reserve. Hopefully this is nothing new to anyone at this point...

First posted in Marketwatch.

The destructive result of the Federal Reserve’s earlier housing and consumer credit bubble became the excuse for embracing a destructive zero interest rate policy which is self-evidently fueling even more destruction.

This destruction is namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households; the illusion in Washington that Uncle Sam can comfortably manage $14 trillion in debt because the interest carry is close enough to zero for government purposes; and the next round of bursting bubbles building up among the risk asset classes.

Moreover, the Fed soldiers on with its serial bubble-making, even though it is evident that the hallowed doctrines of modern monetary theory and the inherently dubious math of Taylor rules have failed completely.

Indeed, the evidence that the Fed no longer has any clue about the transmission pathways which connect the base money it is emitting with reckless abandon (e.g. Federal Reserve credit) to the millions of everyday pricing, hiring, investing and financing outcomes on Main Street sits right on its own balance sheet. Specifically, if the Fed actually knew how to thread the needle to the real economy with printing press money it wouldn’t have needed to manufacture $1 trillion in excess bank reserves — indolent entries on its own books for which it is now paying interest.

So in the present circumstances, ZIRP and QE2 amount to a monetary Hail Mary. There is no monetary tradition whatsoever that says the way back to U.S. economic health and sustainable growth is through herding Grandma into junk bonds and speculators into the Russell 2000.

Admittedly, the junk-bond financed dividends being currently extracted by the LBO kings from their debt-freighted portfolios may enable them to hire some additional household help and perhaps spur some new jobs at posh restaurants, too. Likewise, the 10% of the population which owns 80% of the financial assets may use their stock market winnings to stimulate some additional hiring at tony shopping malls.

That chairman Bernanke himself has explained in so many words this miracle of speculative GDP levitation, however, does not make it so. The fact is, if transitory wealth effects add to current consumer spending, they can just as readily subtract on the occasion of the next “risk-off” stampede to the downside. Indeed, the proof — if any is needed — that cheap money fueled asset inflations do not bring sustainable prosperity lies in the still smoldering ruins of the U.S. housing boom.

In truth, the Fed’s current money printing spree has no analytical foundation, and amounts to seat-of-the-pants pursuit of a will-o’-wisp — the idea of a perpetual bull market. Like the Bank of Japan, the Fed has made itself hostage to the global speculative classes, and must repeatedly inject new forms of stimulus to keep the bubbles rising.
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This is the only possible explanation for its preposterous decision to allow the big banks to resume dissipating their meager capital accounts by paying “normalized” dividends and by resuming large-scale stock buybacks. These are the same financial institutions that allegedly nearly brought the global economy to its knees in September 2008, according to the Fed chairman’s own words.

In what is no longer secret testimony to the FCIC (Financial Crisis Inquiry Commission), Federal Reserve Chairman Bernanke claimed that the Wall Street meltdown “was the worst financial crisis in global history” and that “out of maybe 13…..of the most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two”.

That testimony was recorded just 15 months ago, but the financially seismic events it references have apparently already faded into the dustbin of history. Still, even if the dubious proposition that the banking system has fully healed were true, what did the Fed hope to accomplish besides goosing the S&P 500 (CME:INDEX:SPX)  via speculative rotation into the bank indices?

Well, there are no other plausible explanations. Certainly the stated theory — namely, that by green lighting disgorgements of capital today the Fed’s action will facilitate bank capital raising and new lending in the future —merits a loud guffaw. The fast money has already priced in whatever dividend increases and share buybacks may occur before the next banking crisis, but the last thing these speculators expects is a new round of dilutive capital issuance by the banks. Stated differently, the bid for bank stocks unleashed by the Fed’s relief action is predicated on speculators’ pocketing any near-term “surplus” capital, not leaving it in harms way.

Moreover, even if the Fed’s action had the effect of bolstering, not depleting, bank capital the larger issue is why does our already massively bloated banking system need more capital in any event? The reflexive answer is that this will help restart the flow of credit to Main Street, but it doesn’t take much digging to see that this is a complete non-starter.

The household sector is still saddled with massive excess debt — unless you believe that the credit bubble of recent years is the sustainable norm. The fact is, prior to the Fed’s easy money induced national LBO, debt-to-income ratios at today’s levels were unthinkable. In 1975, for example, total household debt—including mortgages, credit cards, auto loans and bingo wagers—was about $730 billion or 45% of GDP

During the 1980’s, however, this long-standing household leverage ratio began a parabolic climb, and never looked back. By the bubble peak in Q4 2007, total household debt had reached $13.8 trillion and was 96% of GDP. Yet after 36 months of the Great Recession wring-out, the dial has hardly moved: household debt outstanding in Q4 2010 was still $13.4 trillion, meaning that it has shrunk by the grand sum or 3% (entirely due to defaults) and still remains at 90% of GDP or double the leverage ratio that existed prior to the debt binge of the past three decades.

So the banking system does not need more capital in order to increase credit extensions to the household sector. In fact, the two principal categories of household debt — mortgage loans and revolving credit, continue to decline as American families slowly shed unsupportable debt. The only reason total household debt appears to be stabilizing in recent quarters is that student loan volumes are soaring, but this growth is being funded entirely by the Bank of Uncle Sam now that private bank loan guarantees have been eliminated.

Indeed, the startling fact is that the approximate $1 trillion of student loans outstanding — sub-prime credits by definition — now exceed the $830 billion of total credit card debt by a wide margin. While this latest student loan bubble will end no better than the earlier credit bubbles, the larger fact remains that the household sector is only in the early stages of deleveraging. Not the least of the self-evident motivating forces here is that the leading edge of the household sector — the 78 million strong baby boom generation — appears to be figuring out that it is not 1975 anymore, and that retirement and old age are approaching at a gallop.

This obvious household deleveraging trend remains a mystery to the Fed and to the Wall Street stock peddlers who occasionally moonlight as economists. One recent air ball offered up by the latter is that the ratio of debt to disposable personal income (DPI) has dropped materially, and that this proves the household sector has been healed financially and is ready to borrow again. Specifically, the household debt-to-DPI ratio has fallen to 116% from a peak of 130% in late 2007.

Never mind that this measure of household financial health stood at just 62% back during the healthier climes of 1975. It is evident that even the modest improvement in this ratio during the last three years is a statistical illusion. It turns out that the debt-to-DPI ratio is improving mainly because the denominator has gained about $885 billion or 8.3% since the end of 2007.

Yet this gain in DPI has nothing whatsoever to do with an improved debt carrying capacity in the household sector. Thanks to the more or less continuous riot of Keynesian stimulus in Washington since early 2008, we have had a tax holiday and a transfer payment bonanza. Specifically, in the three years since the fourth quarter 2007 peak, personal taxes are down at a $312 billion annual rate (which adds to DPI, an after-tax measure) and transfer payments are up by a $572 billion annual rate.

Both of these are components of DPI, and taken together ($884 billion) they account, quite astoundingly, for 99.8% of the DPI gain since Q4 2007. Moreover, it does not take a lot of figuring to see that these trends won’t last. The Federal tax take is now less than 15% of GDP — the lowest level since 1950 — and will be rising year-after-year in the decade ahead, as will personal tax burdens at the state and local level.

At the same time, the 30% surge in transfer payments over the last three years is mostly done. Unemployment insurance payments — which accounted for much of the rise — will be flat or shrinking in the near future, and various one-time low income programs have already expired. Moreover, the bulk of the current $2.3 trillion in transfer payments go to elderly and poverty level households which carry negligible portions of the $13.4 trillion in household debt, in any event.

By contrast, the ratio of household debt to private wage and salary income — a far better measure of debt carrying capacity — has not improved at all. Household debt amounted to 255% of private wage and salary income at the peak of the credit boom in late 2007, and was still 251% in Q4 2010. At the end of the day, the household debt-to-DPI ratio improved solely because Uncle Sam went on a borrowing spree and temporarily juiced DPI with tax abatements and transfer handouts.

In short, banks don’t need more capital to support household credit because the latter is still shrinking, and will be for a long time to come. Moreover, it might as well be said in this same vein that the business sector doesn’t need no more stinking debt, neither!

At the end of 2005 — before the credit bubble reached its apogee — the non-financial business sector (both corporate and non-corporate entities) had total credit market debt of $8.3 trillion, according to the Fed’s flow of funds data. By the end of 2007, this total had soared by 25% to $10.4 trillion. But contrary to endless data fiddling by Wall Street economists, the business sector as a whole has not deleveraged one bit since the financial crisis. As of year-end 2010, business debt was up a further $500 billion to $10.9 trillion.

The whole propaganda campaign about the business sector becoming financially flush rests on an entirely spurious factoid with respect to balance sheet cash. Yes, that number is up a tad — from $2.56 trillion in fourth quarter 2007 to $2.86 trillion at the end of 2010. Still, this endlessly trumpeted gain in cash balances of $300 billion is more than offset by the far larger gain in business sector debt — meaning that, on balance, the alleged cash nest egg held by American business is simply borrowed money.

At the end of the day, $10.9 trillion is a lot of debt in absolute terms, but based on the Fed’s data on the market value of business sector assets, it is also crystal clear that the relative burden of business debt has been rising, not falling. At the bubble peak in late 2007, business sector assets were valued at $41.5 trillion but alas this figure had shrunk to $36.9 trillion by the end of last year. The grim reaper of real estate deflation has done its work in the business sector, too.

Consequently, total business debt now amounts to 29.4% of business assets---a considerable rise from the 25.2% ratio at the bubble peak in late 2007. What the bullish cheerleaders of recovery constantly forget is that in an epochal deflation like the present one, debts remain at their contractual amounts, even as asset values wither.

So the real question regarding the Fed’s green light for bank dividends and buybacks is quite clear. Banks don’t need more capital to make new loans to households and business. What they actually need is to preserve their current artificially bloated retained earnings accounts in order to protect the taxpayers from the next — virtually certain — banking meltdown.

In this light, the Fed’s action is especially meretricious. If it weren’t in such a hurry to juice the stock market and thereby keep the illusion of recovery going, it might have considered extending the regulatory sequester on bank capital for a few more quarters or even years — thereby preserving a shield for the taxpayers until it has been demonstrated by the passage of time, not by the passing of phony stress tests, that the American banking system is truly out of the woods.

After all, the bottled-up profits currently alleged to be resident in the banking system have not been expropriated by the Fed; they have just been temporarily sequestered — a condition these wards of the state should gladly endure in return for continued access to taxpayer backed deposit insurance and the Fed’s borrowing widow, as well as their license to engage in the lucrative business of fractional reserve banking. Indeed, the fast money should be as capable of pricing in any “excess” capital in the banking system, as it has already been in goosing bank stocks in anticipation of higher profit distributions.

And it is here where the historical data on Bernanke’s 12 out of 13 crashing financial dominoes essentially speaks its own cautionary tale. At the peak of the credit and housing boom in 2006, these 13 most important financial institutions booked $110 billion of net income, and disgorged more than $40 billion of that amount in dividends and stock buybacks.

Would that these fulsome profits and attendant distributions had been real and sustainable, but the historical facts inform otherwise. By 2007, the groups’ profits had dropped to $64 billion, and then in 2008, the 10 institutions which survived to year-end reported a staggering loss of $56 billion. Moreover, if the massive loses incurred by the terrible three — Washington Mutual (NYSE:JPM) , Wachovia (NYSE:WFC) and Lehman — during their final, unreported stub quarter is added to the tally, losses for the year would approach $80 billion.

The unassailable truth here is that in 2006 and 2007 the banks were disgorging phantom profits to their shareholders. When the crunch came in 2008, bank capital had been badly depleted by these unwarranted dividends and stock buybacks.

The danger, of course, was buried in the balance sheets all along. Back in their 2006 heyday, the top 13 financial institutions had $10.2 trillion of total assets — and a not inconsiderable portion of that figure was worth far less than book value, as ensuing events proved. Today the nine banks which are the survivors and assigns of these 13 institutions still have $10.1 trillion in asset footings — hardly a measurable reduction despite the goodly amount of write-offs which have been taken in the interim.

The Fed’s foolish wager — and it is foolish because there is no real purpose other than a momentary boost to bank shares — is that this once toxic asset ridden $10 trillion balance sheet is now squeaky clean. Yet why would any sane observer embrace that dubious proposition?

While the banks have been relieved of mark-to-market accounting, they are still knee-deep in the very asset classes whose ultimate recoverable value remains exposed to the real estate meltdown. Residential housing prices are now clearly in the midst of a double dip, and rates of new construction and existing unit sales are spilling off the bottom of the historical charts

Still, the banking system holds $2.5 trillion of residential mortgages and home equity lines — plus $350 billion of construction loans and more than a trillion of mortgage backed securities. Maybe they have enough reserves to cover the remaining sins in this $4 trillion kettle of residential debt, but betting on housing bottom has been a widow-maker for several years now — and there is nothing on the horizon to suggest that this epochal bust will not make a few more.

Likewise, the banking system is carrying $1 trillion of commercial real estate loans, and the open secret is that “extend and pretend” refinancing is the primary underpinning of current book values. Similarly, the Fed has rigged the steepest yield curve in modern times, but it is a fair bet that as it is gradually forced to normalize interest rates, current record net interest margins will be squeezed. And it is also probable that some of the $2.7 trillion of government, corporate and other securities owned by the banking system may be worth less than par in a world where money rates are more than zero.

In short, a banking system that by the lights of the Fed was on the verge of extinction just 28 months ago could not possibly have gotten well in the interim. In shades of 2006, the nine survivors did report net income of $54 billion in the year just ended, and it is these retained earnings that have purportedly brought bank capital ratios to the pink of health. Then again, the cynic might wonder whether the trading book and yield curve profits of 2010 might not disappear as fast as did the mortgage origination, securitization and trading profits of 2006-2007.

One thing is certain, however, and that is that these behemoths are now truly too big to fail. At the end of 2006, the asset footings of the Big Six — J.P. Morgan, Bank of America , Wells Faro , Citigroup , Goldman Sachs and Morgan Stanley — were $7.1 trillion. Saving the system through shotgun marriages in the interim, our financial overloads have permitted the group to grow its assets by 30% to $9.2 trillion.

If you believe that these massive financial conglomerates are a clear and present danger to the American economy, you might opine that they are too big to exist, as well. But even from a more quotidian angle — unless you are in the banking index for a trade — it’s pretty easy to see that so-called banking profits should have remained under regulatory sequester for a few more economic seasons, at least.

David Stockman is a former member of the House of Representatives and a member of the Reagan administration. He currently owns his private equity fund, Heartland Industrial Partners, L.P .


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Wed, 04/13/2011 - 11:21 | 1165247 Sudden Debt
Sudden Debt's picture

Tyler, you had me at "Fed's Path Of Destruction"



Wed, 04/13/2011 - 11:33 | 1165274 redpill
redpill's picture

Slight Tangent:

Fed's Hoenig: U.S. banks are government-guaranteed enterprises

Was this posted on ZH yet?  I'd be surprised if not, but it's interesting.

Wed, 04/13/2011 - 11:48 | 1165347 cowdiddly
cowdiddly's picture

Exactly, All they have done is take an implicit backing away from Fannie and Freddie and give it to ten times larger banking entities. Fixed. LOL

Wed, 04/13/2011 - 11:58 | 1165376 trav7777
trav7777's picture

well it's true, ain't it?

The debtmoney system was at inevitable path to destruction upon inception.

ANY time you create a money base that requires more money on an ongoing basis to avoid complete (and I mean total) deflation, you have a growth ponzi animal.

When the Fed was chartered it lent X dollars into the system requiring X+iX dollars in the future to repay (i is interest).  The iX dollars did not exist at the time of X's creation.  The sole method of iX's coming into existence is further borrowing by some party in a rolling, geometrically growing credit animal.  If at any point there is nobody left or willing to borrow that additional iX, the system begins to implode.  There is never at any point sufficient money to repay the existing money plus interest owed on it.

Wed, 04/13/2011 - 15:28 | 1166320 baby_BLYTHE
baby_BLYTHE's picture

This is the easiest understanding of debt-based interest money in paragraph form that I have ever read.

Thanks Trav ;)

Do you have any good book recommendations on Peak Oil and its implications on Geo-politics/World Economy?

Wed, 04/13/2011 - 11:44 | 1165328 Popo
Popo's picture

> " One thing is certain, however, and that is that these behemoths are now truly too big to fail. At the end of 2006, the asset footings of the Big Six — J.P. Morgan, Bank of America , Wells Faro , Citigroup , Goldman Sachs and Morgan Stanley — were $7.1 trillion. Saving the system through shotgun marriages in the interim, our financial overloads have permitted the group to grow its assets by 30% to $9.2 trillion."


No. They are *not* too big to fail.  I'm ready for the pain.   Let the whole dismal edifice crumble into oblivion.  Yes, it'll hurt us all.  I'm completely okay with that.  


Wed, 04/13/2011 - 11:50 | 1165348 Careless Whisper
Careless Whisper's picture

don't invest in day old chickens in china.

YUII ooops

Wed, 04/13/2011 - 11:28 | 1165263 kito
kito's picture

retail sales up today, job openings improve. cant fight the fed. time to buy s&p index fund and ride it to the moon. feds game has no end in sight. way too many powerful players with vested interests

Wed, 04/13/2011 - 12:10 | 1165423 topcallingtroll
topcallingtroll's picture

This guy faces reality even if he.doesnt like it.

Wed, 04/13/2011 - 11:34 | 1165273 baby_BLYTHE
baby_BLYTHE's picture

As a die hard fan of all things metal I cannot help it...

Argentina was in bad shape, thankfully Megadeth was there to help Argentinians...

...Sway to the Symphony of their IMF DESTRUCTION!

Wed, 04/13/2011 - 11:36 | 1165295 falak pema
falak pema's picture

Argentina has good flesh as well as good metal. Example : argentinian beef, argentinian soccer, argentinian rugby, argentinian polo. As for the women I don't know but guess they are true "latina tangoistas"... Sway to the symphony of a argentinian tango and go 'contango' on its beautiful countryside.

Wed, 04/13/2011 - 11:47 | 1165335 sunkeye
sunkeye's picture

'tangoistas'  i surrender to the revolution

Wed, 04/13/2011 - 11:54 | 1165368 LFMayor
LFMayor's picture

From FerFals Surviving in Argentina blog it sounds like a slow decay socialist shithole.  A lot like we're experiencing, just smaller scale and further up the timeline.

Wed, 04/13/2011 - 11:37 | 1165296 SheepDog-One
SheepDog-One's picture


Wed, 04/13/2011 - 11:37 | 1165290 RobotTrader
RobotTrader's picture

The Bernanke Fed will go down in history as the greatest ever.

He's engineering another "crack up" boom, lifting up all boats.

Just like Argentina did after its currency and economy crashed and burned in 2001.

Ever since, then, the MerVal has skyrocketed, and an unheard of amount of wealth has been created ever since.

The market has risen from 200 to 3300, that's a 1700% gain in 10 years.

Wed, 04/13/2011 - 11:40 | 1165301 SheepDog-One
SheepDog-One's picture

No wealth has been created in anything but gold and silver physical holdings.

Wed, 04/13/2011 - 11:40 | 1165313 redpill
redpill's picture

Wealth hasn't been created there either, it's only been preserved.

Wed, 04/13/2011 - 12:03 | 1165401 SheepDog-One
SheepDog-One's picture


Wed, 04/13/2011 - 11:43 | 1165316 Careless Whisper
Careless Whisper's picture

and LULU and WYNN

Wed, 04/13/2011 - 12:01 | 1165385 trav7777
trav7777's picture

need to look at price levels in Argentina to have any idea as to what this Merval number means in a real sense.

The truth is that if we are in such a crackup, your mandate is to lever to the fucking moon.  Those who lever in severe inflation end up at least paper rich.  Certainly those who do not will see their paper wealth migrate into the hands of those who do.  So in a relative sense, the levered become wealthier.

Wed, 04/13/2011 - 11:43 | 1165324 Caviar Emptor
Caviar Emptor's picture

Sorry, nobody's equating Stock Market Indexes with the national report card anymore. Most people are voting with their feet, refusing or unable to participate. It's like padding your resume 

Wed, 04/13/2011 - 11:51 | 1165339 falak pema
falak pema's picture

how can Merv have the nerve to contango that far up without coming to a cliff hanger situation. Makes you wonder if Jack and the beanstalk are not fairy tale but real argentinian beef dressed up with risotto and black squid sauce.

Wed, 04/13/2011 - 11:48 | 1165340 Internet Tough Guy
Internet Tough Guy's picture

You think hyperinflation creates wealth? are even dumber than I thought, and you have obviously never been to Argentina.

Wed, 04/13/2011 - 11:59 | 1165362 baby_BLYTHE
baby_BLYTHE's picture


You just admitted we are amidst a "Crack-Up-Boom" as Marc Faber and others have suggested. I have to ask, have you ever looked at what defines one?

Our dear ZH bullshitter, Robotraitor, has just admitted the United States will experience an Inflationary Depression!

Wed, 04/13/2011 - 12:08 | 1165410 SheepDog-One
SheepDog-One's picture

Well as long as his $9 burrito stocks, $75 towel stocks, and $300 leotard outfits stocks are up, RainbowTrader is in hog heaven.

Wed, 04/13/2011 - 11:55 | 1165365 topcallingtroll
topcallingtroll's picture

Robotroll is a fake.

I know a troll when i see one.

Post your trades in real time dude when you buy and sell.

Oh i dont have any investments or.speculations going

Wed, 04/13/2011 - 11:55 | 1165373 Deep
Deep's picture

Wow to compare US to Argentina is just getting desperate. Ever hear of "reserve currency". Wow ROBO, you really have lost your touch.

Wed, 04/13/2011 - 13:37 | 1165890 samsara
samsara's picture

Yes, I was there in 2001ish.  All banks had corrugated steel windows.  Even if you had a 100,000 pesos in the bank, you could only withdraw 1000 per month.

Car Jackings,  Poor people trying to eek out a living.  Money nearly worthless to the average person.


But you are right Ramora,  The WEALTHY had a great time.

But since you scurry to pick up the food that they drop on the floor from their orgy,  I can see why you would think it was a great time.


Wed, 04/13/2011 - 11:42 | 1165303 Caviar Emptor
Caviar Emptor's picture

Saving the system through shotgun marriages in the interim, our financial overloads have permitted the group to grow its assets by 30% 

A core belief of Supply-Siders is concentration of wealth and capital. So this is by design. They think that by creating very large, very powerful leaders within finance and industry you get more "efficient" capital allocation.

It's a top down approach, where money trickles down if the powerful elite are nurtured and the government stays out of their affairs. That's compared with the bottom-up approach where the belief is that spreading the wealth to the greatest number of people (the consumer class) grows the economy more effectively 

So it should be no surprise that the spawn of Milton Friedman would apply this philosophy given the opportunity to do so. But we've watched this movie before. And it doesn't end well.

Wed, 04/13/2011 - 12:01 | 1165388 trav7777
trav7777's picture

our national heydays were during trickle up periods.  However, government does not accomplish that.  National Socialism just creates unassailable plutocracies.

Wed, 04/13/2011 - 13:25 | 1165825 Breaker
Breaker's picture

"It's a top down approach, where money trickles down if the powerful elite are nurtured and the government stays out of their affairs. That's compared with the bottom-up approach where the belief is that spreading the wealth to the greatest number of people (the consumer class) grows the economy more effectively."

This mischaracterizes supply side completely. Generally speaking, supply siders are main-streeters' not wall-streeters. They have a fundamental belief in a FREE market, not the crony capitalist stuff of today's administration.

No supply sider I know thinks funding GE out of taxpayer money (or tax cuts) or Goldman or Bank of America has any real effect on real people's well being.

Nor do tax cuts on the "super wealthy" actually have much effect on THEIR taxes--they already have teams of accountants who have set up various tax dodges and generation skipping trusts and so on. Do you really think Teddy Kennedy, John Kerry, or Warren Buffet are affected much by increases in taxes on the wealthy? I don't.

OTOH, increasing taxes on the "wealthy" (> 250,000 a year equals wealthy, ha ha) hits main street and small companies like a ton of bricks. The burden of those taxes falls on the folks who are actually out there creating jobs and wealth (or in todays world, scratching not to lose more jobs and wealth).

So I agree with you that trickle down is ineffectual vis-a-vis general electric and goldman. But that's not really what supply side tax cuts are designed to accomplish. Of course, the political system will distort any good idea. And I have no doubt that congress and the administration will be able to direct tax cuts to their cronies, rather than to small businesses and main street--they have been incredibly effective in assuring that TARP and the stimulus do not get to the middle class and they have done that via giving away taxpayer money to the too big to fail--exactly the wrong people.

So you are attacking a straw man. The idea of supply side is NOT to finance a "powerful elite." It is to finance productive businesses. Whether that is possible given our corrupt political class is another question. But that indictment applies equally to the current "run up huge deficits and give the money away to large institutions" approach to kickstarting the economy. There is no evidence that our political class is able to make either approach work in reality.

So my solution is to take money and power away from the political class--I'm a small government conservative. Viewed over decades, it seems to me that the case for giving lots of money and power to a group of 535 politicians, a president, and a bunch of unaccountable guys in administrative agencies is VERY VERY weak. Better to give them big titles, fancy outfits and almost no power. Or as P.J. O'Rourke suggests, make their main mission capuring pirates. That will keep them busy and out of our hair.

Wed, 04/13/2011 - 19:16 | 1167118 Slim
Slim's picture

Worthwhile article and well composed and thought out comment.  I honestly have no idea why someone would junk you for it regardless of whether they agree or disagree. 

Wed, 04/13/2011 - 11:40 | 1165312 traderjoe
traderjoe's picture

Anyone that debates the actions of the Federal Reserve Corporation just doesn't get it. The Fed is a privately-held corporation DESiGNED to steal the wealth of Americans through inflation, fractional reserve banking, and loaning money created out of thin air to the government (and the people). It is performing exactly to plan.

Wed, 04/13/2011 - 11:47 | 1165336 silvertrain
silvertrain's picture

+1 They are going to keep on screwing around with the dxy and its going to get away from them...

Wed, 04/13/2011 - 12:10 | 1165420 trav7777
trav7777's picture

in fact this is PRECISELY what Central Banking is supposed to be and do!

Its inception was the Bank of England whose charter members intended to PROFIT from lending to the sovereign and controlling issue of currency.  The original purpose of the BOE was to lend to the English to (surprise surprise) build war power.  The MIC is 400+ years old.

Wed, 04/13/2011 - 13:30 | 1165845 samsara
samsara's picture

Yes and Rothschild, I mean 'The City Of London'  I mean the BOE  is actually (the property) not even part of the UK.  The UK's laws don't apply and not enforceable to Gringotts,  I mean BOE.

Wed, 04/13/2011 - 14:27 | 1166159 Sudden Debt
Sudden Debt's picture

You should give them a call.

Or write them a angry E-mail.


Wed, 04/13/2011 - 13:35 | 1165882 forexskin
forexskin's picture



the entire discussion shifts when we speak of the fed's actions as being by intention rather than by incompetence.

this article focuses on the latter, missing the point, but preserving the respectability of not having invoked the dreaded "C" word.


Wed, 04/13/2011 - 11:43 | 1165315 americanspirit
americanspirit's picture

everybody's got more dollars/pesos/euros - whatever. But just don't look too closely at the price of basics and please ignore all those unproductive families living under the highway underpasses.

Wed, 04/13/2011 - 11:54 | 1165322 lynnybee
lynnybee's picture




Wed, 04/13/2011 - 12:04 | 1165395 newworldorder
newworldorder's picture

The exact date is open to debate, but the modern era in banking started around 1990. This era can be defined quite clearly by the debt is money mantra in the baking system, repeal of financial  regulations in place  since the great depression, design and sales of new debt based financial products and lastly the concept of globalization as championed by the financial and political classes.

People understand this or they dont. Those that don't tend to be older and in denial at what the USA has become. Denial is powerful tool, especially to Americans who measure the patriotism and loyalty to America and its institutions.

I am sorry to say that middle ground does not exist. We will continue on our current path for a long time, untill the system implodes.

Wed, 04/13/2011 - 11:44 | 1165326 markar
markar's picture

OT but,can someone please explain how JPM reported a 67% surge in profits when their losses shorting silver alone have to be in the tens of $billions?

Wed, 04/13/2011 - 11:46 | 1165330 RobotTrader
RobotTrader's picture

I assure you that massive wealth has been created by the stock market boom.

60 Minutes did a piece last night on "Living Large".

I guarantee that none of these guys accumulated wealth by hiding behind sandbags, shorting stocks, clutching gold coins and eating MRE's.

Wed, 04/13/2011 - 11:50 | 1165343 redpill
redpill's picture

I'd rather feed on MREs than on my fellow man.  But I shouldn't expect morality from an extremely-choosy chart whore like you, now should I?

Wed, 04/13/2011 - 15:41 | 1166312 akak
akak's picture

This RobotLemming is as contemptible, amoral and venal a piece of human filth as Leo Kolivakis, who wisely (and thankfully) no longer dares foray into this forum, after having had his outrageously pro-corruption, pro-status-quo, pro-Establishment posts routinely junked into oblivion.  If only RoboMomoDodo would choose the same course, and exit gracefully after having thoroughly discredited himself here.

Wed, 04/13/2011 - 11:48 | 1165350 Internet Tough Guy
Internet Tough Guy's picture

You've got pigman envy, but you will always be a robopiker. Go mug a little old lady, every pigman-wanna be has to start somewhere.

Wed, 04/13/2011 - 11:55 | 1165364 Bastiat
Bastiat's picture

Well said.

Wed, 04/13/2011 - 11:53 | 1165353 topcallingtroll
topcallingtroll's picture

I post all my trades in real time.

I used to find you interesting but lieutenantjohn is right about you catfish mouth.

Post some trades in real time robotroll.

You are a fake and a wannabee.

Wed, 04/13/2011 - 11:54 | 1165369 Bastiat
Bastiat's picture

It's hard to imagine you could believe your own nonsense. 

Wed, 04/13/2011 - 12:01 | 1165383 Cdad
Cdad's picture

I guarantee that none of these guys accumulated wealth by hiding behind sandbags, shorting stocks, clutching gold coins and eating MRE's.


LOL!  Good one rolled me on that one.

However, I'm guessing 60 minutes did not spend much time on which of those "living large" fellas really needed to quit living large and report to federal prison.  So all I can do, really, is what I can do...which does not include defrauding everyone around me, building a Ponzi pyramid, throwing darts at a calendar to determine which day it all falls apart...and using a co located computer to make sure I'm out the door first.  I'm just a law abiding citizen.

So just as soon as Goldman is done crushing gold, and J. Dimon is done shorting more silver, I'm going to buy it all back.  My way, you could say, of taking shots at the criminal syndicate known as Wall Street...buying metals and not participating in their fake industry.

Oh...and Robo...prepare for some truly spectacular stock fails, especially Apple, in  5....4.....3....

Wed, 04/13/2011 - 12:11 | 1165421 SheepDog-One
SheepDog-One's picture

Says RainbowTrader obviously trying to live vicariously thru the pigmen he idolizes and hourly unicorn dew enemas in his 400 sq foot LA apartment. 

Wed, 04/13/2011 - 12:24 | 1165494 lieutenantjohnchard
lieutenantjohnchard's picture

the art of a boastful, arrogant wannabe is to exaggerate and change the subject. case in point this post by the old wannabe himself. i guess soros didn't accumulate his wealth by shorting the pound. oh wait ....

in the meantime (as the robotard would say) the old catfish mouth with a mouth 50x bigger than his brain, is doing everything he can to avoid having to look at his portfolio of dimishing assets needed to pay for his green sprouts.

btw: i thought you were "itching to get short" to make your year. and that's a direct quote. i guess you're going to bash the shorts when your longs are getting destroyed, rather than getting short as you "promised" you would to make your year.

Wed, 04/13/2011 - 12:54 | 1165665 Astute Investor
Astute Investor's picture

Robo seems to confuse actual wealth with the perception of wealth.  It's extremely easy to create the illusion of prosperity through the use of leverage.

What do you call someone who has a $1 million house financed with a $1 million mortgage?  A renter.


Wed, 04/13/2011 - 13:21 | 1165777 percolator
percolator's picture

Over the last decade US equities are basically flat.

So, you would've done much, much better clutching gold coins as they've outperformed US equities by a significant margin over the past decade.

Wed, 04/13/2011 - 13:23 | 1165814 samsara
samsara's picture


Google it.

Wed, 04/13/2011 - 11:49 | 1165352 Jim B
Jim B's picture

He nailed it!  It is a ponzi and robbery of any and all savers!  Ben Bernak you are a thief for wall street and the big banks! 

Wed, 04/13/2011 - 11:53 | 1165357 PulauHantu29
PulauHantu29's picture

Overall, well written. That being said, I now hope for $220 oil.....$3,500 gold......and $100 silver.

So lets proceed with QE3+4+5...and ZIRP a la infinitum.

Wed, 04/13/2011 - 11:53 | 1165359 AldousHuxley
AldousHuxley's picture

Tyler can you update the title to be...

"David Stockman On The Fed's Path Of SELF Destruction"
Wed, 04/13/2011 - 11:58 | 1165375 George Costanza
George Costanza's picture

just wait until monetary velocity accelerates, the Fed will lose control of the ensuing inflation.   In fact, I believe the money velocity in Emerging Markets has already started their acceleration, and we are to follow

Wed, 04/13/2011 - 11:59 | 1165381 Chuck Walla
Chuck Walla's picture

Pelosi tells us the obvious: To my Republican friends: take back your party. So that it doesn’t matter so much who wins the election, because we have shared values about the education of our children, the growth of our economy, how we defend our country, our security and civil liberties, how we respect our seniors. Because there are so many things at risk right now — perhaps in another question I’ll go into them, if you want. But the fact is that elections shouldn’t matter as much as they doNice of her to admit the game is fixed.


Wed, 04/13/2011 - 13:22 | 1165798 samsara
samsara's picture

She is just paraphrasing one of her(probably) and Bill Clinton's (literally) mentors.   Carroll Quigley


Carroll Quiqley on the Two Party System   "The argument that the two parties should represent opposed ideals and policies, one perhaps of the Right, and the other of the Left, is a foolish idea acceptable only to doctrinaire and academic thinkers. Instead, the two parties should be almost identical, so that the American people can 'throw the rascals out' at any election without leading to any profound or extensive shifts in policy... But either party in office becomes in time corrupt, tired, unenterprising, and vigorless. Then it should be possible to replace it, every four years if necessary, by the other party, which will be none of these things but will still pursue, with new vigor, approximately the same policies". -- Carroll Quigley, "Tragedy and Hope", 1966, p. 1247-48
Wed, 04/13/2011 - 12:02 | 1165387 Arius
Arius's picture

if smt is TBTF it is TBTE (Too Big Too Exist)

....sounds common sense to me...

Wed, 04/13/2011 - 12:03 | 1165403 lynnybee
lynnybee's picture

O.K., I read it, I liked it & so what the hell are we going to do about it !!!   i'm to the point of putting on my orthopedic shoes, getting my antique pitchfork & starting my own REVOLUTIONARY GROUP.



Wed, 04/13/2011 - 12:32 | 1165538 RichardENixon
RichardENixon's picture

I'll be right behind you as soon as I find my ear trumpet.

Wed, 04/13/2011 - 13:26 | 1165840 flattrader
flattrader's picture

It's already organized.  Plenty of time to make travel arrangements.

Go here.

Be there or be square.

Wed, 04/13/2011 - 16:13 | 1166584 takinthehighway
takinthehighway's picture

You're also welcome here...

Wed, 04/13/2011 - 19:24 | 1167141 Milestones
Milestones's picture

I like your attitude. Keep it going.           Milestones

Wed, 04/13/2011 - 12:09 | 1165419 zen0
zen0's picture

Robotroll needs to search "Argentinian Inflation".

Wed, 04/13/2011 - 12:13 | 1165441 lynnybee
lynnybee's picture

what the hell did they think would happen to the country when WALL ST. & WASHINGTON got together to off-shore over 8million jobs & the remaining few lucky people to be left employed were only earning $8-$15 / hour !!! ........ it was all deliberate policy to bring this country down so the banks could do just like they did in the 1930's, swoop down & buy assets for pennies on the dollar .     smacks of the same tactics used by the monied interests in the last depression.

Wed, 04/13/2011 - 13:18 | 1165775 samsara
samsara's picture

You have it pretty much dead on Lynny.

The Aristocracy is still pissed about the French Rev.  And want to roll back to the Feudal framework.   They did it without alot of the old trappings.   The found it easier just to do it with debt.

'16 Tons, whatya get? Another day older and deeper in debt...."

"...was all deliberate policy to bring this country down ..."

Yes, The Large banks (ie David Rockefeller/Rothchilds et al) and Mult-National Corps find Nationalism counter productive to them.  They want WEAK nations that are easy to control via the Banks.

It ain't, and never was a Right vs Left thing. 

It is and always been a Up vs Down thing.


Wed, 04/13/2011 - 12:32 | 1165535 Bill the Cat
Bill the Cat's picture

Must... not... let... bubble... pop...  Thpffth!

Wed, 04/13/2011 - 12:34 | 1165562 ZeroAffect
ZeroAffect's picture

"Indeed, the proof — if any is needed — that cheap money fueled asset inflations do not bring sustainable prosperity lies in the still smoldering ruins of the U.S. housing boom."


And, the "smouldering ruins" of the housing market will burst into flames again because the housing 'bust' is not over. 

Wed, 04/13/2011 - 12:35 | 1165569 American Dissident
American Dissident's picture

Americanism:  that which happens when corporatism, Monarchical Fiat banking and cultural Marxism converge upon the market state and begin looting the remainning productive capacity.

Wed, 04/13/2011 - 13:12 | 1165751 topcallingtroll
topcallingtroll's picture

Succinct and true.

I never thought i would see the day when 52 percent of.americans were marxists......yet they dont even recognize the name.

I also saw a poll which said a majority of americans agreed that " from each according to his ability. To each according to his need" was in the constitution.

How sad for the real, traditional american spirit and.heritage.

Wed, 04/13/2011 - 13:53 | 1165985 flattrader
flattrader's picture

>>>I also saw a poll which said a majority of americans agreed that " from each according to his ability. To each according to his need" was in the constitution.<<<

Interesing.  I guess that's what happens when you look around and see this--

At a time when 10 million American families will have lost their homes by year’s end, when $5.6 trillion in home equity has been wiped out, when most Americans face steep unemployment rates and stagnant wages, a Democratic president is likely to compromise with Republican ideologues who insist that further cuts in taxes for the rich is the way to bring back jobs.


Let’s deal right off with that canard. There is currently no shortage of corporate profits or excessive executive compensation to explain away the failure of the private sector to create jobs. On the contrary, as The New York Times reports, “In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years. Collectively, American corporations logged profits at an annual rate of $1.678 trillion.” And to add insult to injury, the top executives, who seem unable or unwilling to create jobs or adequately reward their workers, have increased their own compensation by a whopping 12 percent over the previous year, setting the median pay at $9.6 million per year for those in control of the leading 200 companies. The Times adds that “C.E.O. pay is also on the rise again at companies like Capital One and Goldman Sachs, which survived the economic storm with the help of all of those taxpayer-financed bailouts.” 

Wed, 04/13/2011 - 12:38 | 1165574 partimer1
partimer1's picture

great post, man, thank you

Wed, 04/13/2011 - 12:46 | 1165622 Ned Zeppelin
Ned Zeppelin's picture

Best post in a while.  Nails it.

Wed, 04/13/2011 - 13:19 | 1165794 sunkeye
sunkeye's picture

' ... retirement and old age are approaching at a gallop. ...'  ha i like that line and aint it the truth kimosabe


Wed, 04/13/2011 - 13:22 | 1165810 Temporalist
Temporalist's picture

Resharing this from another post.

Fed risks losing control of inflation - Fisher

"The U.S. Federal Reserve risks employing a monetary policy that is too expansive and allows inflation to run out of control, Dallas Fed President Richard Fisher said in an article published on Wednesday."



Wed, 04/13/2011 - 14:17 | 1166109 Herbert_guthrie
Herbert_guthrie's picture

The Fed's path of destruction has been so well-orchestrated that everything just seems like a big economic accident to the average folk.

All I know is big boys with big piles of money and power don't make mistakes.
When paper falls and gold and silver skyrocket, these big boys will gain even more wealth and power.
Remember, they still have the biggest stacks.

Wed, 04/13/2011 - 14:52 | 1166269 baby_BLYTHE
baby_BLYTHE's picture

Ben Bernanke is a murder of the Middle-Class!

Wed, 04/13/2011 - 15:41 | 1166468 delivered
delivered's picture

The damage to the United States has been done, finished, its over. Capital, the life blood of a freely operating capitalist economic system (which is long gone in the US) is now controlled by the elite few including the remaining big six banks, the federal government, the Fed, and a few corporate giants. They allocate and ration capital in manners only to benefit themselves. While the capital may flow freely between these parties at almost now cost, its basically been cutoff to Main Street stifling innovation, the entrepreneur, creativity, and job creation. And when its made available, the cost is extreme. They're using capital as a competitive weapon. Just like most cars wont function without gas, the same logic holds for most businesses. So cut of the flow of capital and you eliminate your competition.

The concentration of wealth among the elite combined with the federal government consuming extreme amounts of capital at the expense of real private enterprise (not the TBTF's which have implicit government backing present) has killed the goose that lays the golden eggs. Where are the great inventors and entrepreneurs these days (that were the basis of the industrial and technological revolutions)? Oh yeah, I forgot, their attempting to secure Snooki for a $32k speaking engagement, worried about valuing FB (nothing more than a media network of the 21st century) at $50 billion, and spinning endless amounts of US debt just bought back to the Fed in less than two weeks and racking up fees on the trade.

So rather than implementing policies to direct capital to productive and innovative uses, they would rather bury the capital in the TBTF and the assets they own (i.e., real estate, government debt, etc.), sitting there, doing nothing but sucking the life blood out of the country.

Wed, 04/13/2011 - 18:58 | 1167073 honestann
honestann's picture

Correct.  And this will not stop, because those who have monetary and political power will not give it up.  Therefore, the only direction is DOWN.

Which is why there are only two choices.

#1:  The predators-that-be and predator-class must be hunted down and locked-up or exterminated by the honest, ethical producer-class.

#2:  Game over... earth == permanent slave planet.

This is not a joke.  This was not practical in times past, because the predators-that-be and predator-class did not have technology adequate to the task of holding their power as the destruction they caused worsened.  Today they have that technology, and are on the verge of implementing that technology in widespread enough ways to secure their position as permanent elitist authoritarian slave-master predators.  This will lead to intentional extermination of a large portion of the population of earth.  Go ahead and laugh.  Then look at what similar predators-that-be have done in history, with astronomically less technology of mass destruction.

Wake up, get real, get angry, get active... or go down in flames.

Wed, 04/13/2011 - 16:57 | 1166764 Lazane
Lazane's picture

David Stockman- some things never change, he was good for American prosperity then and would be good for recovering American prosperity again. Fat chance of that happening.

Wed, 04/13/2011 - 18:59 | 1167074 P-K4
P-K4's picture

"Indeed, the evidence that the Fed no longer has any clue..."  I am beginning to think Mr. Stockman hasn't a clue. To think all this has been done for the economy and the sheeple of United States is naive. I'm no accountant or finance guru but I can recognize theft when I see it. It's been a massive transfer of wealth from US to private bankers, Wall Street sluts, gubermint czars and the like.

If Castro or Chavez could hire the same media and Ivy Leaguers, they would apply for statehood tomorrow as the 58th and 59th states and start real wealth looting on an exponential basis. Come to think of it, they already have the media ... 

Wed, 04/13/2011 - 20:00 | 1167263 mcarthur
mcarthur's picture

Bravo.  Stockman for prez.

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