Submitted by Adam Taggart via Peak Prosperity,
1. command; supreme power.
2. area of dominion; sphere of control or monopoly; empire.
3. a nation having or exerting supreme power; superpower.
David Stockman, former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier is an insider's insider. Few people understand the ways in which Washington DC, The Fed, and Wall Street work and intersect better than he does.
He's extremely concerned by the "perfect storm" he sees of concurrent failures in US policy across foreign, monetary, economic, and fiscal fronts:
If you look at the entire radar screen of things developing both domestically and internationally, we are plunging deep into a perfect storm of policy failure. The American Imperium is collapsing. There is blowback everywhere. The wreckage of prior policy mistakes of our intervention with foreign policy is coming home to roost, and the Ukraine is one area at ground zero for that.
But second, monetary central planning is now coming to a dead-end. It is inflating the third financial bubble of the century and the Fed is now clueless as to how it will manage to unwind the massive balance sheet expansion it has been undertaken.
And third, the fiscal doomsday machine continues to crank on. Washington is ignoring the fact that we are six years into a business cycle expansion and we are still running massive deficits and there is no cushion for the next upset that comes to the economy.
Now, why is all of this important? Because I think the foreign policy failures -- the collapse of the American Imperium as I call it -- is at the center of this, and it will push all of these things in the wrong direction.
We are now becoming much more aggressive in our foreign policy than ever before. We can't afford it by any means. And the potential for this to create black swans to roil or dislocate these very fragile markets that have been created by this massive central bank balance sheet expansion -- it all makes what is happening in the Ukraine, or in the Middle East in Gaza, or in the collapse of Iraq, even more dangerous in terms of what it could trigger. So we are in a real pickle here and I think it is compounding by the day.
At risk here is America's capability to remain the world's dominant superpower.
For example, in the current rush to demonize Russia, Stockman sees the military industrial complex (as warned by President Eisenhower) steamrolling over any of the necessary debate, diplomacy or consideration that should proceed such warmongering:
Basically, the war machine in Washington (I call it the Warfare State), couldn't abide that. There are just too many people that operate in the devil's workshop; which is to say we have all of this capacity, we have all this machinery of war-making and of intervention and of global empire that is obsolete and unnecessary -- and yet it is manned by people who want something to do. Who need to justify budgets. Who need to pursue and prosecute missions. That is what I think is happening at the present time.
It's just the warfare state machinery has gotten itself activated into motion and it is drastically simplifying the real facts that we face and creating a narrative that is really preposterous in terms of what our national security, the safety and security of the American people, really requires in this circumstance.
And on the domestic front, he foresees very difficult times ahead as we try to wean ourselves off of the dependency on massive thin-air stimulus our economy has developed over the past six years:
On the way up as they inflated this bubble, the smart money got on board and basically was front running everything the Fed was doing. Once they became confident that the $85 billion of bond buying was going to stabilize, if not enhance, the price of the bond and they could buy it on 98% repo leverage at $0 carry cost, they jumped in hammer and tong. And so the Fed then had this magnetic force working with it, which was the fast money and the market attempting to front run the direction of Fed policy.
But just think: What happens if they actually began to allow interest rates to rise or begin to attempt, through one mechanism or another, to shrink their balance sheet?
The fast money will get on the other side of the trade just as fast as it rode the bubble expansion to the top. And they will sell what they think the Fed is selling. And that will cause a massive unwind of the greatest overvalued market bubble in the world, which is the government bond market.
Click the play button below to listen to Chris' interview with David Stockman (55m:23s):