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On David Stockman's Out-Rage

Bruce Krasting's picture




 

 

72368558_96108

 

A few years ago I walked around David Stockman’s backyard. I was admiring his stone walls. We fell into a conversation about rocks and masons. David has a good eye for stone, and he knows the proper way to lay it up (A balance of symmetry and chaos, with the least amount of mortar possible). I was pleased to learn that he holds stone masons (all artists) in much higher regard than lawyers, bankers and politicians. My kinda guy.

We talked about the macro/micro issues at length - Stockman knows the numbers and the history. He has an interesting perspective on the global economic scene. I thought about the meeting later. I concluded that Stockman was not just passionate about the state of affairs – he was out-raged. I wondered why.

 

Stockman is still out-raged. His new book, The Great Deformation, is his opportunity to vent some of that emotion. He does a pretty good job of it. There are a dozen “names” who will cringe reading it.

 

stockman_0131364421181

 

This is a history book. It’s a detailed account of the key events since the Depression that have shaped modern finance. I love history, and I’m familiar with those events. Stockman’s spin on financial history makes for a very good read. There’s something for everyone. For example, were you troubled by the bailout of AIG, and TARP? If so, you’ll love this chapter:

 

Paulson's Folly - The needless Rescue of AIG and Wall Street

 

 

Do you worry that Bernanke has overplayed his hand with monetary policy? Stockman rips him apart:

 

The Bernanke Bubble: Last Gift to the 1 Percent

or

How the Fed Brought the Gambling Mania to America's Neighborhoods

 

 

Do TV talking heads influence Fed policy? Stockman says "yes".

The Rant That Shook the Eccles Building: How the Fed Got Cramer'd

 

 

Worried about US indebtedness to foreign central banks? That’s covered in:

Monetary Roach Motels

 

Stockman puts meat on the bones to some old stories. A few examples:

Nixon took the USA off of the gold standard in 1971. The motivation and timing was Nixon's burning desire to win the 1972 elections. He devalued the dollar for a short-term boost to the economy. Tricky Dick rigged the global currency markets to achieve his ends. That makes Watergate look like small beer. Very high stakes poker was played. Nothing new today.

 

During WWII the Fed capped long-term interest rates at 2.5%. To hold that level, the Fed bought up all the supply (A slightly different version of today’s QE). The rate cap continued until 1951. How it ended (and the secret fight between Truman and the Fed) is history worth studying. This is a window into what will happen when the Fed is forced to end the current QE. Not surprisingly, it was 5% inflation that ended cheap money in 1951. How do you think Bernanke's QE will end?

 

 

A central element of the US economy is Roosevelt’s New Deal – Stockman shreds it:

The payroll tax has become an anti-jobs monster

In truth the trust funds are both meaningless and broke.

The fast approaching day of reckoning is thinly disguised by trust fund accounting fiction.

 

 

There's plenty of one-liners; a few of the many I found amusing:

 

On George Kaiser's "loss" in Solydra: (How not to make friends in Tulsa)

by essentially "shorting" Uncle Sam, George Kaiser stands to harvest a 4.6 times return on his sham investment to "rescue" Solyndra

 

On Elon Musk (How not to make friends in SoCal)

That a megalomanical promoter like Elon Musk could walk off with half a billion in taxpayer money, blown in less than four years, and make himself the toast of Hollywood in the process is powerful evidence that the putative conservative parted has vacated the ramparts of the US Treasury.

 

On Bernanke ("befuddled academic") and Janet Yellen ("career policy apparatchik"): (How not to make friends at the Fed):

these hired hands keep the carry trades well lubricated and generate continuous opportunities for speculators to extract vast economic rents from deformed financial markets

Bernanke is the godfather of of the debt zombies.

 

On former Treasury Secretary Hank Paulson, and the AIG bailout:

in one of the most egregious derelictions of duty every recorded, Paulson and his posse of Goldmanite hotshots hastily and blindly shielded these behemoths (the TBTF banks) from even a dollar of loss on their AIG insurance policies.

 

On economists:

New Deal revivalists Like Paul Krugman are essentially telling fibs and peddling historical legends is not offensive merely because it distorts the distant past. These legends actually compound the deformations of the present by rationalizing policies that cannot succeed and will only bury the nation deeper in debt.

 

Glenn Hubbard was of the opinion that the Wall Street-coddling policies of the Greenspan-Bernanke era had been a roaring success.

 

The preposterous Fred Mishkin headed the posse of debt-bubble deniers who dominated the Fed's supporting cast. In a major study he concluded that the only bubbles in Iceland were those welling up from its famous hot geysers.

 

Keynes fancied himself a dandy, of course, and would never have been caught wearing the equivalent of Gandihi's loom. But when it came to nations and their unwashed masses, it is not at all surprising that he thought the nationalistic and autoartic Nazi Germany was the most likely candidate for early adoption of his program.

 

My only disappointment with The Great Deformation is that there is very little in the way of what could be done, versus what is being done. Stockman does offer up a few thoughts of what might be considered. These will get more than a few eyebrows raised on Wall Street and in D.C.:

- Abolish deposit insurance, strangle the Fed and shrink the banks.

- Adopt a Super Glass-Steagal. Abolish bailouts.

- Eliminate the Electoral College and establish strict term limits.

- A balanced budget, eliminate economic subsidies, shrink the federal government.

- Impose a 30% tax on wealth to reduce debt to 30% of GDP (assumes a $10T tax on the top 10% - think Cyprus on steroids)

- Eliminate income taxes and replace it with consumption taxes.

This is all blue sky stuff. It sounds alright, but it's not feasible for the USA to consider any of these measures. Stockman acknowledges that his list will never see the light of day, "They would never be adopted in today's regime of money politics, fast money speculators, and Keynesian economics".

 

Stockman sees nothing but trouble ahead for the USA. He realizes that the changes that are needed to avoid the big fall are simply not in the cards. Now I understand why he's so out-raged.

 

reillymasonry-IthacaNY

Hat tip:KR

 

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Sun, 03/31/2013 - 10:10 | 3393200 ISEEIT
ISEEIT's picture

No shit-:)

At this point....Voting is the problem. Sure, we get lousy choices but with such an overwhelming percentage of straight up morons casting ballots, demockracy virtually assures collapse before reform.

Sun, 03/31/2013 - 04:02 | 3393023 Simon Endean
Simon Endean's picture

"The reason some people want the electoral college gone is a national popular vote would allow blue states like California and or New York elect a president much more easily."

 

But of course - that way you have the "right" people determining who rules.  Power further consolidates in the hands of the elites. 

There's also the niggling problem of actually abolishing the electoral college - to do so, you'd have to pass and ratify a Constitutional Amendment that negated a pretty key part of the Constitution.  Not exactly sure how eager anyone should be to open that door.

Sun, 03/31/2013 - 07:36 | 3393111 Sandmann
Sandmann's picture

If you abolish the Electoral College you will have to stop the practice of 2 Senators per State also

Sun, 03/31/2013 - 14:38 | 3393769 Binko
Binko's picture

Over here you have two Senators for 2 million people and over there you have 2 senators for 30 million people. Not exactly representative.

Two senators per state is a legacy from the days of the founding fathers when the states actually were fairly independent entities and not completely enslaved by the Federal government.

Sun, 03/31/2013 - 11:32 | 3393327 Fred Hayek
Fred Hayek's picture

Why does that necessarily follow? I don't see that it has to.

Sat, 03/30/2013 - 20:38 | 3392583 masterinchancery
masterinchancery's picture

Yes, that part of Stockman's program is insane.

Sat, 03/30/2013 - 19:52 | 3392499 steveo77
steveo77's picture

 Free Platinum Contest and Thoughts on Palladium
No joke, enter your best guess by April 23rd and Win 1/4" Platinum Liberty Coin

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Also some thoughts on Palladium, a potential 3 bagger with a compelling story.

http://oahutrading.blogspot.com/2013/03/palladium-investing.html

http://oahutrading.blogspot.com/2013/03/palladium.html

http://oahutrading.blogspot.com/2013/03/pgm-platinum-and-palladium-funda...

Sat, 03/30/2013 - 19:32 | 3392473 andrewp111
andrewp111's picture

Abolishing the Electoral College is a very bad idea. At least it contains problems to individual States, which have the legal authority to count the votes. Do you want to see a full national recount, or the clusterfuck that attempting one will be? I sure don't.

Sun, 03/31/2013 - 01:40 | 3392978 Bear
Bear's picture

Why have states anyway?

Sun, 03/31/2013 - 07:38 | 3393112 Sandmann
Sandmann's picture

you have a valid point when they tamper with Electoral College they must have population-weighted Senate elections too and then you have a unitary state like Britain

Sun, 03/31/2013 - 00:51 | 3392943 Vooter
Vooter's picture

Here's an idea: DON'T VOTE. That way, you won't have to pretend that the outcome of a presidential election actually matters....

Sat, 03/30/2013 - 19:30 | 3392466 Arthur
Arthur's picture

 Impose a 30% tax on wealth to reduce debt to 30% of GDP (assumes a $10T tax on the top 10% - think Cyprus on steroids)

- YIKES!!

 

Eliminate income taxes and replace it with consumption taxes

Okay by me.  But watch the barter economy boom

Sun, 03/31/2013 - 09:13 | 3393154 Never One Roach
Never One Roach's picture

<< replace it with consumption taxes >>

 

This new internet sales tax and the postal rate increases are indirect 'consumption taxes' aren't the? I already now two small businesses that are going under b/c of them.

How about many of the new roads being constructed.....many are Toll Roads, another consumption tax.

A few dollars here....a few dollars there ....these 'tiny taxes' add up to a serious drag on our economy.

Sat, 03/30/2013 - 19:24 | 3392460 ebworthen
ebworthen's picture

Good stuff.

Yes, the U.S.S.A. has crossed the Rubicon.

It must be completely dismantled violently soon to save it.

Or, more likely, a slow long decline into the sunset like Great Britain, and Rome before it.

Sat, 03/30/2013 - 19:18 | 3392457 disabledvet
disabledvet's picture

A good stone mason is hard to find these days. And indeed so is a "conservative banker." i really wish someone would define what collateral is now cuz it sure doesn't look like it exists anymore "other than at bonus time." if the euro is replaced by the D-mark i think you'll see a lot of so called "credits" on the balance sheets become "debits." since my personal belief is the the Fed has locked the Federal Government into a plan to pay for things "without resorting to outright theft" (i.e. stealing depositors money outright) it will be interesting to see how the banks respond "in kind" to the American taxpayer's generosity. Synthetic CDO's reappearing via Citigroup i think is a warning shot to those who think "they've solved the problem of 2008" that indeed...they have not. They have solved A problem (cauterizing the 2008 asset collapse gash) but the Riddle of Growth still has yet to be "figured." i firmly believe Europe will solve it "ye olde fashioned way" by a return to massively devalued local currencies. talk about putting Wall Street in the driver's seat. taxes have already surged both here and in Europe which means it's up to the Pentagon to "find the money"...AGAIN. with fires erupting all over various strategic places on the globe i think a thoughtful study of Britain's "Foreign Office" is very much in order. up until World War I the Brits never went anywhere without it already having been paid for. http://en.wikipedia.org/wiki/Foreign_and_Commonwealth_Office i don't believe we have an inflation ala the 1950's/Korea on the horizon because we don't have a draft anymore. hence all that spending is being "eaten up" (literally) in transfer payments which go directly to the economy but have little or nothing to do with employment nor in creating it. needless to say Government employment can be decreased MASSIVELY should the Pentagon determine "the war effort takes precedence over all other Agencies." Should be an interesting fight...

Sat, 03/30/2013 - 21:08 | 3392636 bank guy in Brussels
bank guy in Brussels's picture

As to the request in your post:

« ... really wish someone would define what collateral is ... »

Here is 'collateral' defined to the max, in a fabulous 35 seconds of cinema -

Tom Cruise getting his 'Collateral' briefcase back with a semi-automatic pistol

For those who have never heard gunfire on real city streets (Long ago, I had the privilege, travelling through rough cities of the United States, along with armed Americans literally 'riding shotgun') ... this is what gunshots in the streets are REALLY like ... i.e., LOUD:

http://www.youtube.com/watch?v=UiqwF_Y9S5Q

Sun, 03/31/2013 - 10:57 | 3393257 Variance Doc
Variance Doc's picture

Yep, he went all Mozambique on him:
https://en.wikipedia.org/wiki/Mozambique_Drill

Gotta love the sound of a .45, especially an HK.  The HK45C is a very, very good gun (TC uses a USP 45).
http://www.imfdb.org/wiki/Collateral

Sat, 03/30/2013 - 23:48 | 3392844 Real Estate Geek
Real Estate Geek's picture

Mr. Cruise was well-trained by ex-SAS for that movie.  Its nightclub scene is great too.

Sat, 03/30/2013 - 20:13 | 3392536 Muppet Pimp
Muppet Pimp's picture

If you are in FL, try these guys:

https://www.oldfnb.com/

They are OLD SCHOOL.  The debit card arrived folded inside a piece of copy paper with the business card of the branch manager I opened the account with, asking me to call him personally upon receipt to have him activiate it.  Checking pays a little over 3% interest and they have a 4 out of 5 star strength rating. Came to learn of them at an event that they sponsored a big Old Florida Festival with music, gun demonstrations by a couple of manufacturers and lots of BBQ and happy folks with their dogs and what not.  Drew a crowd of at least 6k or so.  They paid for the Hospitality tent with free beer, wine, cheese, fried catfish and hushpuppies.  Good fellas, they treat you right.  GL

Sat, 03/30/2013 - 22:00 | 3392730 rhinoblitzing
rhinoblitzing's picture

Red Flags....

Sun, 03/31/2013 - 11:27 | 3393314 RafterManFMJ
RafterManFMJ's picture

Red Flags and blaring alarms. Probably a drop box for a bank based in Cyprus.

Sun, 03/31/2013 - 12:26 | 3393432 j0nx
j0nx's picture

3% in a ZIRP environment?? Danger danger, run Will Robinson.

Sat, 03/30/2013 - 19:15 | 3392447 Mototard at Large
Mototard at Large's picture

A 30% wealth tax?  Here we go again.

Savers and takers.  What we are seeing in Cyprus and Spain now is already unnerving for many people – especially savers.    The government, the Banks and supra-national organizations are creating new policies that say they can take your savings  http://tinyurl.com/d9d74qf

Sat, 03/30/2013 - 19:31 | 3392468 Colonel Walter ...
Colonel Walter E Kurtz's picture

The problem is...it is going to happen either way. We either do it before the crash with hopefully some rule changes (not likely) or we all suffer a 30% reduction in lifestyle after the crash. 

Not enough sheeple awake enough to force government/politicians/banks to change course before it is too late! I see darkness on the horizon....

Sun, 03/31/2013 - 10:20 | 3393206 new game
new game's picture

or 50 -70 percent lower standard in a barter econ at the point of gun transaction.

trust will not exist! shoot first or be shot because you trust...

hope i'm dead first fighting for liberty...

Sat, 03/30/2013 - 19:02 | 3392436 sangell
sangell's picture

I like Stockman but the reason's Nixon shut the gold window were a lot more complex than his re-election campaign, an election he was never really in jeopardy of losing and, in the event, won overwhelmingly. Everybody was pulling out of the Bretton Woods system and there was a run on the US gold reserves in the summer of 1971 which was a long time before the election.

Sat, 03/30/2013 - 18:59 | 3392431 pndr4495
pndr4495's picture

A hammer is a hammer and a chisel is a chisel , but in the hands of a Michelangelo , Bernini etc. beauty and goodness and truth are created.  The same cannot be said of the financial tools used by the MBAs over the course of the last 20 - 30 years.  Nor does the entire population of MBAs or Econ PHDs have the equivalent of any artist , Rembrandt or otherwise.  There is a constant feeling of angst in my belly because of what the BIG SHOTS have wrought for America.  

Sun, 03/31/2013 - 10:14 | 3393204 new game
new game's picture

well put +11(1 +10)!!

Sat, 03/30/2013 - 19:00 | 3392428 falak pema
falak pema's picture

he has been reading Eric Janszen and Paul Craig Roberts. He has similar views. 

 

http://harpers.org/archive/2008/02/the-next-bubble/  This was an early warning signal very well written by Janszen.

Paul Craig Roberts - Official Homepage

What's new ? Maybe the insider titbits! 

I get the feeling a lot of people saw this 2007 crisis in the making and it reminded them of dot.Com bubble only worse; as they had seen the mindset change from the inside in Pax Americana lead players. 

Its always amusing to hear people monday morning quarterback five years after. Well, its better late than never.

Maybe Stockman said it well before 2007 in which case he deserves kudos! 

 

Sun, 03/31/2013 - 11:09 | 3393280 new game
new game's picture

PCR - luv his little mixed in the conversation laugh(like it is the fg joke it is-to me a true sign of ulta intel because he knows the outcome) while he mater of factly

"say it is already too late"

lol, cause what other option is there...

Sat, 03/30/2013 - 19:46 | 3392488 Northeaster
Northeaster's picture

Janszen is from my neck of the woods, as one of my close friends who worked under him told me, he bet against the stupidity of the government. He made a ton on the silver trade too, all gold now last I heard.

Sat, 03/30/2013 - 18:54 | 3392415 Muppet Pimp
Muppet Pimp's picture

I take back my simple characterization that Stockman is just another leftist.  But you gotta admit I nailed it speculating he had an upcoming book deal :)

OT:  While many here do not like his work, Dave does a good job connecting some dots in this piece: http://tradewithdave.com/?p=16018

Sat, 03/30/2013 - 18:48 | 3392411 Tao 4 the Show
Tao 4 the Show's picture

Accounts like Stockman's are taking on the ring of obituaries or at least reminiscences of a past age.

Sat, 03/30/2013 - 18:48 | 3392410 kaiserhoff
kaiserhoff's picture

The reforms will be accomplished after the crash.  It's too late now.

Great piece.  The only amendment really is the gold standard.  The old peg under Bretton Woods was $35.00/ounce.

That was too low, and the French were demanding payment, in gold, for a trade deficit.  The right move would have been to increase the peg, or let gold float freely.

Nixon listened to the economists.  The rest is very sad history.

Sat, 03/30/2013 - 19:34 | 3392474 ootofthehoos
ootofthehoos's picture

I guess you know gold does float freely and gold cannot float freely in a gold standard. The way you wrote it sounded like you were saying "float freely" is a right move, too.

Sun, 03/31/2013 - 11:22 | 3393308 RafterManFMJ
RafterManFMJ's picture

Why this sounds like a perfect place to mention FOFOA Freegold. Perhaps he's onto something with that idea/prediction.

Sun, 03/31/2013 - 09:27 | 3393169 kaiserhoff
kaiserhoff's picture

That is confusing for those who weren't there.

We were on a silver standard at the time, which Nixon ended.   Gold was, in theory used to balance international payments.

Sat, 03/30/2013 - 18:47 | 3392409 Suisse
Suisse's picture

 Impose a 30% tax on wealth to reduce debt to 30% of GDP (assumes a $10T tax on the top 10% - think Cyprus on steroids)

 

Absolutely horrible idea. All that does is reward those who did not save and spent mindlessly. 

Sat, 03/30/2013 - 19:50 | 3392494 malek
malek's picture

A quick number comparison points to him wanting to cut the federal debt to 30%, so private debt would not being reduced by that measure (and that would remain the domain of traditional bankruptcy.)

Sat, 03/30/2013 - 19:09 | 3392445 Peter Pan
Peter Pan's picture

I agree with you. Let the wealthy continue to accumulate at the expense of the middle class until they have nothing more to give. ( sarc off)

Sat, 03/30/2013 - 19:47 | 3392453 Suisse
Suisse's picture

At least a third of the population in the U.S. does nothing of value so why does it matter? Most of the cities aren't bombed out craters for no reason. 

Sun, 03/31/2013 - 11:18 | 3393301 RafterManFMJ
RafterManFMJ's picture

Heh, I'd say at least 70 percent are economic ticks, slurping the lifeblood of the producers...

Sat, 03/30/2013 - 18:50 | 3392416 kaiserhoff
kaiserhoff's picture

Missed that.  You're right.

Sat, 03/30/2013 - 18:44 | 3392405 Eireann go Brach
Eireann go Brach's picture

Until a few heads are delivered in a FedEx package during a meeting at the Fed or Washington, nothing will change! The sheep in this country and the rest of Europe are all blind and stupid and will get what they deserve for their ignorance and choosing not to educate themselves!

Sat, 03/30/2013 - 19:26 | 3392461 Go Tribe
Go Tribe's picture

Or a necklace string of banker/politician ears.

Sun, 03/31/2013 - 00:42 | 3392928 Monedas
Monedas's picture

Package it to look like a box of Omaha Steaks from Buffet ?

Sat, 03/30/2013 - 18:39 | 3392395 Carpathia
Carpathia's picture

Happy to be an artisan piano technician who keeps a harmonious balance.  If only craftsman ran in the world instead of lawyers, accountants and banksters.

Sun, 03/31/2013 - 09:41 | 3393184 Stuck on Zero
Stuck on Zero's picture

Hey Carpathia, craftsmen do run the world.  They are "word crafters."

Where we used to have the steel industry and the mining industry we now have the financial industry and the gambling industry.

 

Sun, 03/31/2013 - 14:24 | 3393740 spekulatn
spekulatn's picture

Where we used to have the steel industry and the mining industry we now have the financial industry and the gambling industry.  ( ....and the "entertainment" industry)

 

 

Sat, 03/30/2013 - 18:53 | 3392423 LawsofPhysics
LawsofPhysics's picture

Craftsmen do run the world. Unfortunately, they started accepting paper promises in exchange for their labor. Blowback is a bitch and there is indeed a dark side to art.

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