Is Reaganomics The Culprit For The Approaching Meltdown Phase 2?

Tyler Durden's picture

Paul Farrell is out with another rather dismal outlook on the financial system (better known in the vernacular as the feloneous Ponzi scheme), and how while the immediate causes of the crash, and its disastrous aftermath, which benefits only the upper class at the expense of everyone else, are certainly a function of the current and previous administration, one has to look further back to see the flawed foundations on which everything is built. As far back as Reagan, in fact, and his eponymous Reaganomic doctrine according to Farrell. "Was their Reaganomics ideology so rigid, so blinding, they couldn’t (and
still cannot) admit they were wrong? Forcing them to lie to America?
Cover up the lies? The evidence is clear.

Today, a harsh lesson from history, facts and a warning. Listen closely
America. It’s already happening again. The collective Reaganomics Brain
has gone from crash to cover-up to comeback kid to
capitalism-for-the-super-rich in three short years. Now with absolute
power over America." Sure enough, Farrell sees the events of 2008/9 as only the first step in the unwind of Reaganomics. Step two is coming, and it will be the final end of not only the Great Moderation experiment started in the early 80s, but, luckily, of that organization at the heart of it all: the Federal Reserve.

From Marketwatch:

The worst is yet to come. The forces behind the 2008 crash are stronger today. Like the villain in a horror-flick sequel, the dark side is now hungrier. Phase 2 is already in full swing as the Reaganomics Brain aggressively races to complete unfinished business — the 2008 meltdown — which will implode Wall Street banks and the Fed, ending the reign of the dollar as the world’s reserve currency

Recently we reported some bearish predictions for 2011 by two respected market leaders: Ned Davis warns of a “midyear peak” before a new cyclical bear. Jeremy Grantham warns investors to get out before Christmas. Market Crash 2011: It will hit by Christmas.

Bad news for investors angry at the past, worried about the future. Remember, the Dow’s barely above its best 2000 level of 11,722. Adjusted for inflation, the market has flatlined the past decade.

Here are the incremental catalysts that have lead us to where we are now:

America’s boomers don’t have to be rocket scientists to see the workings of the Reaganomics Brain here, how it’s destroying capitalism, democracy and their retirements. Here’s hard evidence of lies and cover-ups in past and future catastrophes:

March 2004. Fed Chairman Greenspan ‘cover-up’ of coming crash

In a Bloomberg Market’s magazine column last year, “Greenspan Cover-up,” Roger Lowenstein, author of “The End of Wall Street,” wrote that in a newly released transcript of a March 2004 meeting Greenspan “argues against disclosing too much to the public lest the Fed ‘lose control of a process that only we fully understand’.” Yes, a cover-up.

Lowenstein was classy, but went ballistic: “This statement ranks as a sign of monumental arrogance. It was Greenspan himself who didn’t understand, much less ‘fully understand,’ that the Fed’s lax mortgage regulation and easy monetary policies were setting America up for a disastrous fall.”

Then the indictment: “Had the Fed publicized such concerns, it might have led to a crackdown and forestalled millions of bad mortgages that would be written over the following 2 1/2 years. Instead, the Fed released minutes with sanitized phrases that had been stripped of alarming language.” Lying by omission, then a cover-up.

Now ask yourself: Was Greenspan so blinded from being inside the myopic echo chamber of the collective Reaganomics Brain for so many years that he, like all other insiders, is forced to lie, then cover up the lies?

Aug 2006. New Treasury secretary in ‘cover-up’ of crash dead ahead

As a postscript to the meltdown, Bloomberg later reported that back in August 2006, a month after Henry Paulson left Goldman Sachs as CEO with a net worth of over $500 million to become the new Treasury secretary, he spoke to the White House staff at Camp David: “Paulson held up over-the-counter derivatives as an example of financial innovation that could, under certain circumstances, blow up in Wall Street’s face and affect the whole economy.”

Reminds us of Warren Buffett’s famous reference to derivatives a “financial weapons of mass destruction.”

Cover-up? Conflict of interest? You bet. America’s Treasury secretary had the facts, but never warned the public. Worse: Instead, happy talk and lies from Paulson, covering up the risks. More than anyone in America, as Goldman’s CEO, Paulson knew about all about the deadly risks in the $500 trillion global derivatives casino, from years building Goldman’s derivatives business.

Worse: Later, when we learned about Goldman’s cover-up in failing to disclose to its own investors its double-dealing with AIG and hedge fund shorting, Paulson’s conflict of interest became clearer. He should have disclosed the risks, yes, had a duty to warn America, but instead refused to share, chose instead to lie and cover up for years.

July 2007. Paulson and Bernanke ‘cover up’ crash after it began

Cover-up? Lie? America’s Treasury Secretary? Yes, a cover-up at the top. One year after becoming Wall Street’s Trojan Horse on the inside of Washington, as the meltdown spread rapidly across Wall Street, this guy with the keys to trillions of the American taxpayer’s retirement money, could have come clean. But instead he was locked into the collective Reaganomics Brain ideology, forced to perpetuate the cover-up.

Yes, Paulson could have told the truth to the American public, to investors and taxpayers, but instead Paulson told Fortune magazine: “This is far and away the strongest global economy I’ve seen in my business lifetime.”

What a whopper. Part of the bigger overall cover-up of the collective Reaganomics Brain ideologues, for during these pre-meltdown years, Paulson, Greenspan and new Fed Chairman Ben Bernanke were regaling America with happy-talk about the subprime mortgage crisis being “contained,” just “regional froth.”

October 2008. Meltdown, then Paulson cons a clueless Congress

America’s Treasury Secretary, Hank Paulson was Wall Street’s man on the inside in the fall of 2008 just before the presidential election.

He failed America when the derivative markets collapsed, by conning Congress into protecting his Wall Street buddies with cash, credits and sweetheart deals, even though they were insolvent, virtually bankrupt and had no negotiating power.

Cover-up? Yes, the Reaganomics Brain ideologues were inside, running America for Wall Street’s benefit rather than the American taxpayer. Paulson’s old buddies were all well-protected — to be paid out of retirement monies from America’s boomers.

March 2011. Greenspan leading new Reaganomics resurgence

The Reaganomics Brain that’s ruled America for the past generation is making a swift comeback as the dominant political ideology favored by Wall Street. Last week Bloomberg news put this dangerous resurgence in the spotlight, in effect confirming that the worst of the 2008 meltdown was never completed, historical lessons never learned, and that another crash — like the aftershock of a deadly earthquake — is coming soon to complete the unfinished business.

Here’s why: Bloomberg just reported on a Greenspan’s article in International Finance magazine. He’s not only defending his legacy with renewed allegiance to the ultra-conservative Reaganomics Brain dogma that sustained him for 18 years; Greenspan now blames Obama’s Keynesian policies for the slow recovery. Listen:

Greenspan’s “conclusions fit with his long-held free-market ideology.” He warns “a surge in U.S. government ‘activism,’ including fiscal stimulus, housing subsidies and new regulations, is holding back the economic recovery.” But like Paulson and the rest of this Reaganomics Brain resurgence, there’s no acceptance of his personal past in the meltdown, only blame.

Greenspan sees the problem with the recovery of the American economy as the Democrats failure to embrace free market, deregulation and massive tax cuts, not Greenspan’s failed monetary policies, not Bush’s costly preemptive wars, not Cheney’s belief that “deficits don’t matter.”

What comes next is nothing short of the second revolution per Farrell:

Back in an early 2008 quarterly letter to investors, Jeremy Grantham, whose GMO firm manages $100 billion worldwide, said the warning signs of a coming crash were everywhere. But few listened.

As Grantham put it, “the three or four dozen-odd characters screaming about it are always going to be ignored.” Past and future. Why? It’s a brain defect, trapped in our DNA, overriding our rational abilities.

Worse, the new Reaganomics ideologues like Bernanke, the GOP, Tea Party, even Obama, are now marching in lockstep, embracing Reaganomics, squashing all descent, and repeating the same economic blunders as Greenspan and Paulson.

For more information read my report of 22 warnings from major market figures starting in 2000 till the 2008 meltdown. My summary includes warnings by one SEC chairman, two Fed Governors, five leading economists, four billionaires, five money managers overseeing trillions, two leading financial historians, and many more not on the list. 20 reasons a new mega-bubble will pop in 2011.

All their warnings were ignored, lied about and covered up by Greenspan, Paulson and all the other Reaganomics Brain ideologues running Washington and Wall Street the past generation. But soon a powerful revolution will stop the lies and the cover-ups.

Is Farrell being unduly alarmist? Perhaps. Then again, few predicted the tsunami of "liberation" that is sweeping MENA, and soon Asia. The precedent has been set, and it is slowly but surely moving toward the west. With the relentless theft from the middle class by the oligarchy accelerating, and appreciated by everyone, sooner or later there will be nothing left in the great American welfare state to keep the zombified Joe Sixpeasant satiated. At that point all bets will be off.

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Logans_Run's picture

Farrell has been ranting about Reaganomics since MW gave him his bully-pulpit. It goes back further than Reagan. It goes all the way back to the establishment of the Fed and the delinking of the dollar to gold during the Nixon regime. Reagan was just another fool along the way, frankly not much different than any of the fools after him nor those before him.

Eternal Student's picture

Sorry, I have to disagree. Farrell has hit upon a key point, and I have to say that I'm impressed with him once more. But he doesn't quite nail the central concept. And that is, we're in the Financialization phase of the current economic cycle. I.e. once we moved from making money out of producing things, we moved on to making money out of money. This is the central theme of the 1980's, and it's in this phase that we've seen the ridiculous rise of all the various financialization schemes and products. As well as the move of production offshore. And the various Ponzi credit schemes required to keep this game going.

There was an excellent book written about this a couple years ago. Alas, I've forgotten the title at the moment, but I've found it useful and most descriptive to see things from this angle, if you want to understand what's going on in terms of the big picture. You can see that what we're going through is basically the same old long term economic cycle that we've always gone through. The last Financialization phase ended in the Great Depression, and this one will not end differently.

Now, this isn't to dismiss your points about the Federal Reserve and the Gold Standard. Rather, I'd view the impacts of these on top of the Financial nonsense that has arisen since the 1980's.


NotApplicable's picture

The financial nonsense of the 80's was due to Greenspan (and his backers), not some puppet named Reagan.

Anyone who claims that puppets do things of their own free will is merely adding distortion in order to make the facade appear realistic.

The only thing that presidents "do," is to appear to have gravitas in the eyes of the sheeple. (At least if they are good at it.)

Boonie's picture

strongly agree.  unfortunately, farrells focus on the "reaganomics" descriptive takes away from the point of his article and those fond of reagan will be sidetracked even though farrell describes obama as acting via the "reaganomics brain."

i also agree that the financialization (this time inflationary) is the product of 1971, while the 1920s financialization was more the result of then fed easy money policies (busted by deflationary effect of sounder money gold standard).

chet's picture

"I.e. once we moved from making money out of producing things, we moved on to making money out of money."

That's about the crux of it.  You have those in banking who can actually just create the giant pool of money/debt, plus other rent seekers who know how to hang around between the spigot and the rest of us.  They get rich just grabbing easy scraps as the invented money/debt flows out to the people. 

Then they figure out that the larger and larger this pool of debt gets, the more scraps they can grab from their position by the spigot.  So as far as they care, the pool of debt ought to be as big as an ocean.  Heck, two oceans!  And the spigot should be replaced with a fire hose.  And hey, they aren't greedy.  All they ask is a mere 1% of everything that flows by.

Flakmeister's picture

Whether he was personally repsonsible for the finacialization and gutting of the US, he certainly was not smart enough to realize it and stop it. Clinton is also guilty re: Glass-Steagall...

The cocksucker that I want to see swing is Phil Gram...his fingerprints are over all the legislation.

Ham Wallet's picture

Right??  I'm always amazed at how little flack Clinton gets for his contributions to 'The Great Recession'. 

Flakmeister's picture

I think Clinton just got a little Flak, if you know what I mean... Clinton also signed the 1996 Telecommunications Act, another fave of mine..

Bartanist's picture

And the Commodity Futures Modernization Act of 2000 that elevated derivatives from  illegal bucket shop bets to full retard legalized fraud.

New_Meat's picture


"Right??  I'm always amazed at how little flack Clinton gets for..."

u can leave it there, lad.

- Ned

JW n FL's picture

All the Whores of the Beltway have been owned by Bankers who then used them and abused them for thier whole 4 - 8 year shelf life...


Clinton / Obama / Bush 1 / Bush 2.. all the same.. the last one to buck the status quo was shot forwards, backwards and sideways... all from behind in Texas. Now I realize the 6.5 Creedmor is a nasty round, but it aint magic.

chet's picture

Trying to pin something this systemic on one president or another is a waste of time.  There has been complicity across the board.  In all three branches of goverment.

We use to produce things and sell them abroad, thus bringing new wealth into the country. Now we all do "services" for each other, passing the same buck back and forth.  One big circle jerk with little genuine wealth creation.  So we started borrowing it instead.

Flakmeister's picture

Correct to a point, Reagan defined the era in where we lost our financial bearings. In my book he gets the blame...

Should have added, Gram and that fucker Rubin, let's make it a bipartisanship lynching....I don't play left-right favorites

karzai_luver's picture

The last several books by Kevin Phillips showed the map to the last 10 years or so clear as day.


He was so much on target that it makes your eyes hurt to read his stuff.

No surprises. People that paid attention to him along with just a little investing sense have made a killing and no his books didn't give investing advice but laid out the future.


All the way back to The Politics of Rich and Poor.

He nailed the whole sordid mess upfront.


Flakmeister's picture

Phillips knows his shit.... the first 1/3 of American Theocracy should be required reading.

Thomas's picture

Kevin Phillips' "American Theocracy"

Eternal Student's picture

Wow. I really had to say that I'm impressed by the thoughtfulness and the discussion in the replies. It's incredibly refreshing to see, instead of the ad hominems, "* b*tches" and other comments which really don't advance a discussion, nor offer insight to it.

I enjoy getting intelligent feedback on my own thoughts and views, and am not disappointed here.

Congrats and thanks to all.

I am more equal than others's picture

First, who is responsible for the spending bills.  Not the president.  Remember that drunk - Tip O'Neal - another Massoftwoshits product (Barney Frank is the cocksucking version of the same and fat old eddie renting out the whore house for the night - sounds like fun until you get the phone call from the doctor saying you need to come back to the office as soon as you get back from driving Mary Jo home) - he started and led the spending spree (Laffer curve is right) that every congress has followed since (oh yeah, there was a piece of shit president from Texas - no not W - LBJ - why are the presidents from texas known by letters instead of names - that's right - all taxassholes have nicknames that could have been used in Deliverance - that started the not-so great society - what a misnamed boondoogle that fucks the budget up forever - risk shifted retirement from individual and families and put it on the goberment).  Pre-dating Regan was Volker.  He saved the day - a Carter appointee (worst president ever) - that raised interest rates as needed (soon to be done again by the market).  Regan had the right ideas but the wrong supporting cast - tip was charlie sheen and regan was john crier.  Tip won by spending everthing regan's policies created. 

docj's picture

First, who is responsible for the spending bills.

Yeah, funny how nobody seems to remember who is actually responsible for spending money under our (nominally) republican system of government.

THE DORK OF CORK's picture

Congress only produces the base of the money pyramid - the pyramid is unstable as it is inverted with the banks fractionally multiplying their toxins on top.

By the way lets take a look at Dr Friedman's monster - the Global free floating FX market - it dwarfs even the bond market.

It has the brain of a retarded criminal in the body of a giant ogre.

The most absurd creation in the history of man.

Maybe such blind fate in this monster will help to destroy its ability to organise rational human serfs and accelerate is downfall.


reddog's picture

How dare anyone attack the REAGAN GOD !!!

Even though papa BUSH called Reaganomics "Voodoo economics",

anyone who would attack Reaganomics is clearly a commie, pinko, faggot.


These three legs have placed us on the plane we now inhabit.


Sarah Conner's picture

I'm not sure what Reagan or his -omics had to do with the most recent blow-up, and unfortunately this article fails to shed the light...

New_Meat's picture

author forgot to say-"all Bush's fault."

NOTW777's picture

have you noticed that whenever these gurus rail about everything that is wrong or broken with the system, obamas name almost never shows up.  most of this country is still under the trance of some bizarre race guilt thing that is inexplicable.  that is what enables anyone in the current admin to respond to any question or criticism with knee jerk charges of racism.  many will be blaming bush and reagan to the gates of hell

lynnybee's picture

+1   ........   Obama just gives speeches; is the invisible man.

New_Meat's picture

lynnybee- au contraire, madame:

Our Dear President just reads from the "Teleprompter of the United States".

TOTUS is the invisible teleprompter.

- Ned

karzai_luver's picture

that's because obama is nothing more than the bastard caretaker.

there is nothing he could or can do to help anything even if that was his desire.


once you leap off the cliff it's no hope to scream for wings.


Miss anthrope's picture

aaaaaaaaaAAAAAAHHHHHH.   <crowd claps with the approval of a fabulous golf swing>

JW n FL's picture
by Sarah Conner
on Tue, 03/08/2011 - 16:53


I'm not sure what Reagan or his -omics had to do with the most recent blow-up, and unfortunately this article fails to shed the light...


Reagan was the one who took debt structuring to a whole new level.. the art of engineering long term debt disguised as a Bond.. for national interests, roadways and such.. think strucutred debt increased by 3,000% in 8 years and from there, kept going.. and before Reagan, no structured debt to that scope and scale in history.

You have the hue of an ex or soon to be ex-republican.. the only thing you need to know is.. follow the money... an spoiler alert! no matter who you love, they are an owned whore who belongs to the Lobby..

Arkadaba's picture

And read recent history. The Thatcher/Reagan era still needs to be dissected.

Flakmeister's picture

 The success of Thatcherism in one easy chart....

Select oil and United Kingdom

At least it gave the bankers something to loot in the name of prosperity....

ft65's picture

But at the time, most people went along with it. If the Ponzi doesn't collapse in you life time, you got away with it.

Those people who complain most about "the beast" are those who have been feeding from it's hands. Things are only returning to the old status quo, so who really lost out?

kengland's picture

No. It's central banking and the fractional reserve system

Liberty's picture

+1 Thank you.  Couldn't have said it better myself.

Michael's picture

Partly Yes. Regan planted the seeds for the out of control deficit spending. That's why I prayed the big bubbles, aided by the federal reserve, would blow up on a republican president and they did. The NASDAQ and the housing bubbles blew up on George Bush. Thank you God.


I'm registered Republican.

lynnybee's picture

P.S.  I'm registered Republican.     

No you're not !  I don't believe that for one moment !   You're tooo damn smart to be a REPUBLICAN !   You're an Independent ........ admit it !   

New_Meat's picture

mikey can't admit it: that would require him to be honest in public.  Never happenz. - Ned

Michael's picture

I'm a closet Libertarian infiltrating the Republican party to destroy it from within to reshape it in my image and likeness.

Been doing it for 30 years. It's starting to work.

economessed's picture

It's just too convenient to blame the dead guy.  What do you say we find some living people to blame and hold them accountable?  (Crazy thought, I know.)

Hondo's picture

I think most of his s*** is just mumbo jumbo but I would like the FED as we know it to be toast!!!  They have been nothing but a wealth transfer agent since the beginning.

Logans_Run's picture

Yup, functioning exactly as designed for almost 100 years! He let's celebrate that Centennial by dismantling it once and for all!

samsara's picture

Yes, and to have a hearty laugh and slapping each other on the back they had the 100 yr. reunion on Nov. 1 2010 at Jekyll Island.

or just google  'jekyll island fed meeting'

10kby2k's picture

Cover up of inflation:

Housing                     weight  40%   -10% 

Wages                       weight  20%     -5%

Commods                   weight  20%   +40%

Other domestic           weight  20%     -5%

Total = 2% inflation 

Buying power/net worth =   -13%

Logans_Run's picture

Actually since my new job pays 50% of what my prior job paid, I am down net 63%. Yeah I'm much better off since Obama took over the WH!

JW n FL's picture

Obama is.. lil Bush part deux in technicolor... all of Bush's programs.. have been extended beyond Bush's wildest dreams.. but understand.. there is no difference between any of the beltway gang, they are all owned.. and the NSA / FBI / CIA who should be keeping "We the People" safe from this large scale shit.. are in on the take.. sweet private sector jobs await all those in the know.

ft65's picture

Quoting JW n FL / J.E.W.

the NSA / FBI / CIA who should be keeping "We the People" safe from this large scale shit.. are in on the take..


The alphabet agencies have never been the friend of the people. The same goes for all government agency's and armed services. They are all self serving entities that do the government's bidding for a regular pay check. Increasing the bureaucracy increases the pay check. Everyone wants in on the top quartile.

It is / was the press and news media outlets who were the watch-dog, but they were hijacked years ago, by their now owners the military \ industrial \ congressional complex.

None of this is new! It's just now the wheels are falling off, poor people are awakening from the self induced hypnosis of "I'm alright Jack"  


Flakmeister's picture

"I'm alright Jack"  soon to be dirty words only used in exclusive company

Segestan's picture

Altruistic Socialism mixed with a huge demand for profit, is the idealistic hammer that has brought the world to the brink, not a single player, party line or religious fundamentalism. In short globalism sucks.

Roy Bush's picture

What a stupid article.  As Alex Jones constantly says (who is sometimes annoying, I know), "Don't fall into the left/right paradigm."  It's Fed-o-nomics and spend-o-nomics that has bankrupted this country.  If it's not the left spending on wars and half-baked social programs, it's the right who make up excuses to invade foreign countries and feed the companies of death.  The only constant, aid to Israel and the constant clicking of the printing presses creating more and more money.