"The Cacophony Of Fed Confusion," David Stockman Warns Will Lead To "Economic Calamity"

Tyler Durden's picture

"We never should have painted ourselves so deep in this QE corner in the first place," chides David Stockman, "because the whole predicate [of Fed policy] is false." The author of The Great Deformation holds nothing back in this brief 3-minute primer of everything is wrong with the American economic system (and the CNBC anchors definitely did not want to hear). "We are already at peak debt and forcing more into the economy didn't work," and won't work as is merely funds Wall Street's latest carry trade to nowhere and fiscal irresponsibility in Washington. Simply put, "the private credit channel of monetary transmission is busted," so the Fed is exploiting the only channel it has left - "the bubble channel."

"There is a massive bubble inflating on Wall Street"

It's hump-day, grab a wine cooler and listen to 3 minutes of almost uninterrupted truthiness


And here is David on The Keynesian Endgame...

Even the tepid post-2008 recovery has not been what it was cracked up to be, especially with respect to the Wall Street presumption that the American consumer would once again function as the engine of GDP growth. It goes without saying, in fact, that the precarious plight of the Main Street consumer has been obfuscated by the manner in which the state’s unprecedented fiscal and monetary medications have distorted the incoming data and economic narrative.

These distortions implicate all rungs of the economic ladder, but are especially egregious with respect to the prosperous classes. In fact, a wealth-effects driven mini-boom in upper-end consumption has contributed immensely to the impression that average consumers are clawing their way back to pre-crisis spending habits. This is not remotely true.

Five years after the top of the second Greenspan bubble (2007), inflation-adjusted retail sales were still down by about 2 percent. This fact alone is unprecedented. By comparison, five years after the 1981 cycle top real retail sales (excluding restaurants) had risen by 20 percent. Likewise, by early 1996 real retail sales were 17 percent higher than they had been five years earlier. And with a fair amount of help from the great MEW (measurable economic welfare) raid, constant dollar retail sales in mid-2005 where 13 percent higher than they had been five years earlier at the top of the first Greenspan bubble.

So this cycle is very different, and even then the reported five years’ stagnation in real retail sales does not capture the full story of consumer impairment. The divergent performance of Wal-Mart’s domestic stores over the last five years compared to Whole Foods points to another crucial dimension; namely, that the averages are being materially inflated by the upbeat trends among the prosperous classes.

For all practical purposes Wal-Mart is a proxy for Main Street America, so it is not surprising that its sales have stagnated since the end of the Greenspan bubble. Thus, its domestic sales of $226 billion in fiscal 2007 had risen to an inflation-adjusted level of only $235 billion by fiscal 2012, implying real growth of less than 1 percent annually.

By contrast, Whole Foods most surely reflects the prosperous classes given that its customers have an average household income of $80,000, or more than twice the Wal-Mart average. During the same five years, its inflation-adjusted sales rose from $6.5 billion to $10.5 billion, or at a 10 percent annual real rate. Not surprisingly, Whole Foods’ stock price has doubled since the second Greenspan bubble, contributing to the Wall Street mantra about consumer resilience.

To be sure, the 10-to-1 growth difference between the two companies involves factors such as the healthy food fad, that go beyond where their respective customers reside on the income ladder. Yet this same sharply contrasting pattern is also evident in the official data on retail sales.

* * *

That the consumption party is highly skewed to the top is born out even more dramatically in the sales trends of publicly traded retailers. Their results make it crystal clear that Wall Street’s myopic view of the so-called consumer recovery is based on the Fed’s gifts to the prosperous classes, not any spending resurgence by the Main Street masses.

The latter do their shopping overwhelmingly at the six remaining discounters and mid-market department store chains—Wal-Mart, Target, Sears, J. C. Penney, Kohl’s, and Macy’s. This group posted $405 billion in sales in 2007, but by 2012 inflation-adjusted sales had declined by nearly 3 percent to $392 billion. The abrupt change of direction here is remarkable: during the twenty-five years ending in 2007 most of these chains had grown at double-digit rates year in and year out.

After a brief stumble in late 2008 and early 2009, sales at the luxury and high-end retailers continued to power upward, tracking almost perfectly the Bernanke Fed’s reflation of the stock market and risk assets. Accordingly, sales at Tiffany, Saks, Ralph Lauren, Coach, lululemon, Michael Kors, and Nordstrom grew by 30 percent after inflation during the five-year period.

The evident contrast between the two retailer groups, however, was not just in their merchandise price points. The more important comparison was in their girth: combined real sales of the luxury and high-end retailers in 2012 were just $33 billion, or 8 percent of the $393 billion turnover reported by the discounters and mid-market chains.

This tale of two retailer groups is laden with implications. It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.

Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.

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Deathrips's picture

No matter what shithead..you contributed to it...dont try and come clean now.

Hes on point now..where was he before?




Disclaimer: I dont know this guy...but hes on cnbc...so hes insider material. You dont see Paul Craig Roberts on MSM.

Seize Mars's picture


Yeah, I appreciate that he is saying popular things right now, but this guys was definitely part of the problem.

And I'm not much into a forgiving mood these days.

Deathrips's picture



Im not in a forgiving mood either. This is getting well out of hand....kabuki theater ish wtf. Hes crying BS ..while quoting their numbers....WTF. Has been shit for a long time. When does it end.


Well there's a serial junker on the loose. FYI




(FYI = Fuck You Idiot..not mars)

kliguy38's picture

I like how Stockman says were creaping along at 2% GDP......BULLSHIT.....maybe - 2%  and when he was asked about unemployment the dumbshit missed his chance to say that sure its down but its because everyones dropping out of the labor force.....they're giving up.... He can't be that stupid so his ommission makes me believe he's just another disinfo agent of the scumbags

Charles Nelson Reilly's picture

Are you guys serious with this? Am I on ZH right now? Has anyone seen a David Stockman interview in the past year or read a chapter from his book? The guy is telling like it is and throwing everything including the kitchen sink at the Keynesian statists who occupy govt & wall st

Hapa's picture

Stockman is hitting the nail on the head.  He is still part of the system - but this platform is important to preserve. He may not have pointed to the fraud in the unemployment statistics, but perhaps he chose to stay on his more macro message.

Charles Nelson Reilly's picture

How exactly was Stockman part of the problem? He quit in '85 when the Deficit spending started spiraling out of control.

LetThemEatRand's picture

Yes, Stockman (with whom I disagree on some things) had the balls to quit when he saw that the Reagan Revolution was actually a debt based economy designed to enrich the top.  And here we are.  Turns out he was right.

fonzannoon's picture

I don't hold his past against him. But from 2 mins 25 seconds on he threw some serious bs out there.

Chief Wonder Bread's picture

The solution is obviously all that rabble who shop at Walmart, Kohl's, Dollar General, etc. should be shopping at Tiffanys, Saks, Whole Foods.

Why can't the 'experts' in charge of this shitshow get this right?

yellencrash's picture

In other words, let them eat cake. Haven't we heard that before? And the truth is, when Marie said it, it wasn't sarcasm. The elite were really that out of touch. Nothing changes.

StychoKiller's picture

Most don't know it, but the cake being referred to is crap that is baked on ovens.

LetThemEatRand's picture

Stockman is an ideologue in a way that blinds him to some things, but at least he gets the negative role of the Fed.

fonzannoon's picture

I love that what you just said was completely true and accurate and you got immediately junked for it. 

LetThemEatRand's picture

But that's true of every post of mine, isn't it?  :)

acetinker's picture

No.  We all have our blind spots.

BandGap's picture

This guy got nipped at his confirmation hearing for trying to get out of paying his student loans back when Ronny was battling the Evil Empire. It has been odd to witness his ascension into being an oracle against the Fed.

Still pondering what this all means. Lots of ex aides and government officlas are coing forth with dissenting opinions these days. Trust is still something to be doled out in small portions.

Charles Nelson Reilly's picture

If you don't know who David Stockman is, then shut fuck up and pay attention before you post stupid things like "he's an insider".

Pick yourself up a copy of "The Great Deformation", then let's hear your critique

Deathrips's picture



Ill read it.

But I have a strong feeling i'm not going to be impressed with a guy who quit because of corruption, but still cites the corrupt phoney data.

Yeah..they were full of shit in 85 so I quit, but now their numbers are right?

Chill out..not like I kicked your dog.

He is a tool, gatekeeper, controlled opposition and an insider...thats why hes on CNBC. Until I see otherwise Im sticking to it.



I'm reading.




(I don't kick dogs)


EDIT: Reading along. Through chapter one. Ill keep reading...Yes he is using a tactic used by many gate keepers. Facts strewn with disinformation. He is blaming the puppets (useless), not the puppetters (Brass Tax, the owners of the FED). Am I missing something here?

Deathrips's picture

"The Great Deformation is a story that evolves decade by decade after the

First World War. It is a historical sketch of what happened and a polemic about what went wrong. It features a gallery of policy villains, that is, pro- ponents of unsound finance, including Franklin Roosevelt, Richard Nixon, Arthur Burns, Walter Heller, Milton Friedman, John Connally, George Schulz, Art Laffer, Cap Weinberger, Alan Greenspan, Newt Gingrich, Bob Rubin, George W. Bush, Hank Paulson, Tim Geithner, Jeff Immelt, John Mack, Paul Krugman, Larry Summers, Barack Obama, and most especially Ben Bernanke. Alongside is a cast of policy heroes who champion the cause of sound money and fiscal rectitude at crucial times, including, in the early periods, Carter Glass, Professor H. Parker Willis, Calvin Coolidge, Herbert Hoover, Lewis Douglas, James Warburg, and later, Harry Truman, Dwight Eisenhower, George Humphrey, William McChesney Martin, Doug- las Dillon, Bill Simon, Paul Volcker, Howard Baker, Pete Domenici, Bill Clin- ton, Paul O’Neill, Ron Paul, Richard Shelby, and Sheila Bair." If only the good puppets had won, we would have been saved. What about the interest to the private shareholders. RIPS I kind of like a few of his heroes, but realize that the system needs to be cleansed and rebuilt into the repoblic that was america pre 1871. This town needs an ENEMA.
pavman's picture

Pre-1871 there were very few private corporations as they were pretty much illegal.  I was thinking about this this morning.  Private corporations allow for concentrated power which then feeds the federal beast.  Let's make corporations illegal and make people reponsible for their actions again.  That just might fix some of this mess.

Deathrips's picture



Well you thought about it, +1. I disagree, and commend your inquiry. 

Ethical corporations and capitalism (not crony), are the counterbalance to overreaching government.

A true capitalist knows that his community is his garden. They fill his dinner plate ongoingly; therefore, he tends to the communities needs..that ultimately support him. This is why he nurtures his community, self interest is preserved through community interest. The capitalist brings currency to the community and spends it in the community, the workers spend it in the community. They spend it driving nicer cars, buying nicer homes and that benefits all....growing an even more sustainable and larger "community" garden. The capitalist out of self interest ...takes care of his workers.


Crony capitalists see a field of crops raised by someone else, ready for plunder. A great example is any big box store. These stores put the local community shepherds out of business, then exploit the community till there's nothing left. The money flows to the owners elsewhere draining the local resources till they are all gone. Kind of reminds me of another parasite, i digress. Words like business ethic and community support are just a farce created to rape and pillage more from the community (again reminds me of some other entity).


Strong local community supporting business = Good

Liar looters taking from the community under false pretense = Bad


Thats my opinion, anyway.


Ill wear the downvotes on this article and my comments as a badge of honor. If I only agree with any group all the time..im not part of the solution.




Everybodys All American's picture

Wrong. While Director of OMB under president Reagan he was against deficit spending and said so in spite of his boss and the economic expansion that happened under Reagan.

acetinker's picture

RIPS, yer gettin' yer ass handed to ya' fer stating simple truth.  You need to be careful with PCR- he is from the same era, and he doesn't know how to pronounce 'hegemony' anymore.  Maybe he never did.

Thing is, if either one of these guys were perceived as a threat by TPTB, they'd have died of 'natural causes' by now.

Deathrips's picture



Thanks man. Im not saying that PCR is the solution. I'm not saying anyone's the solution. Im saying that hes not on MSM touting govt numbers, he at least acknowledges that they are fiction. I agree real people/leaders are silenced.

This isnt getting my ass handed to me. Theres many people who still believe that their champions have their backs... they dont.. they were/are part of the matrix. At least some people who were blind are waking up. PCR is one example..i don't think hes all the way there by any means. He does talk about real inflation John Williams and real unemployment numbers. At least he better than this guy Stock Man. But thats the point. No one chooses whats best for me, like me. So fuck em all. Be independent.

For me, the path out of this gets darker before it gets lighter as governments and TPTB, with hands firmly up governments asses, dangerously flail around trying to maintain the kings throne. That is not the end..that is the beginning of them going away. What will be left is for the people to choose how they want to live..if we play it right. I only hope that people learn that this is all a show.... the most expensive pay per view in history..but they dont know they are paying with their blood/sweat. Who knows Nuclear war or meltdown or whatever could end that possibility. You gotta dream, right?

The solution is in the peoples mentality. They have to learn not to depend on champions to take care of them and learn to take care of themselves. Sorry, but political theater is Dumbos magic feather....you dont need it to fly.

I dont care who the fuck junks me...you aren't me and are free to choose for yourself. I have thick skin. You think these MSM people are going to save you? Try not to cry when the tooth fairy in lingerie doesn't come the night you crack a crown.


The path out, is an adventure inward of personal responsibility...not leper messiahs. (opinion)


You can follow who you like. But remember you will eat the bread you bake..or guess whats in the bread someone else bakes.


Just for the record...my first thought on this guy was he was like a tame PCR..as I was not able to edit my initial post...i couldnt insert a better solution. Like there is one.


Whatever the fuck this is worth.




Soul Glow's picture

The Fed is a schizophrenic grouping of opinions and personalities.  The economy is improving, but not enough to stop QE 2100.  We see job growth but not enough and maybe the UE target isn't justified.  Not enough inflation using the CPI but energy prices are still very high.  


fonzannoon's picture

"what would the economy be doing if they just let the chips fall where they may"

"the economy would still be growing at 2%....we would not have had a deeper recession"

Yeah fucking right...my white hairy cottage cheese looking ass we would be growing at 2% without a deeper recession.

WTF is this guy smoking? We got a look behind the curtain in 2008. Everyone decided it was better to make pretednd we did not see it. The next time we get a look it will all be over in an instant.

BandGap's picture

Chill. Good tune.


Same as it ever was - do you want to play?

Everybodys All American's picture

that's why bankrupting the corrupt and a clean start is always a better solution than to pretend.

TheReplacement's picture

Seeing as how there is no end in sight for the current continuing recession one might conclude that letting them fail would have probably caused a deeper recession/depression but it would have been shorter and over with by now.

acetinker's picture

Damn, fonz!  I coulda done without that visual.

buzzsaw99's picture

truthiness from a supply-side kleptocrat-bureaucrat (from a long line of same) seeking to distance himself from the carnage about to unfold? please, do tell.

elwind45's picture

If he said he nailed Nancy would you likely him more

order66's picture

Someone must stop the wealthy.

There's only one thing to do...

"Hit em' with the Kenny G"


WhiteWolf's picture

He was getting paid.  Look, I believe David. He ain't one of us, but he sees the truth and now he ain't getting paid to ignore it.

elwind45's picture

Getting the boot from dumbshit Reagan rates

Deathrips's picture

Next thing you know...John Kerry will be telling MSM, that "I was telling John Corzine well before 2008 that his actions were unethical"

Junk away..for some reason I cant edit my initial post. Fuck it this guys a shithead.



Uber Vandal's picture

This chart sez it all too:


None of the data even comes remotely close to the December 2013 data point, and it goes back 30 years.

Then again, must be all the hybrid and electric cars, and bicycle trails.


Unknown Poster's picture

Once the federal governments interest payments begin to rise, any confusion amongst fed reserve members will clear up.

elwind45's picture

Have you tried any other flavors

acetinker's picture

I've sampled 'em all. Still, I am yet to comprehend a single word of elwin45's musings.  I'll tell you this much and swear it's true; A couple quaaludes, dozen lines of blow, and a sixer of cerveza mas fina and you'll know- It's sunrise on the sufferbus.


Duc888's picture



""We never should have painted ourselves so deep in this QE corner in the first place,"


What a brainiac.  I'll take "No Shit" for $200 Alex.

elwind45's picture

Paints been dry from day one? Add food and energy proper to CPI which pushes 2% inflation and then raise rates Volcker-style? Excess money gets destroyed and everybody has a leveled level playing field to start from? As EM economies fail you send in the marines to kill everyone and take everything not nailed down? Tell China and the American people no mote Chinese imports and attack during rioting? Roundup zreohedge members to occupy emptied prison beds of minor drug offenders and start a landrush into occupation zones!

lasvegaspersona's picture

Where I disagree with Stockman is that he thinks that if a few other things were 'fixed' we'd be OK. I think that by 2007 it was already too late and everything done since then has been to try to save that which cannot be saved. Nothing being done now will matter in the long run. The dollar was doomed from 8/15/71 and we are just watching the last rabbit being pulled from the hat. There are no more bunnies in there.

elwind45's picture

Just raise rates? Once all the dollars come home let everything collapse and have EM pay you to buy it!

lasvegaspersona's picture


sorry but if just a few of those dollars started home it would be over.  We might be able to eventually absorb all those trillions out there, if they came home in an orderly manner. They can't. At the margin, in a panic...forget it.

WTFUD's picture

I'm not the brightest bulb in the flower bed but I get it!!! So why does that clown in the big WH not get it? ( Oops rhetorical question )