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David Stockman: "The Capital Markets Are Simply A Branch Casino Of The Central Bank"

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A selected excerpt by David Stockman from his just released interview with Alex Daley of Casey Research:

This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they're doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank. And they will keep laughing all the way to the bank on Wall Street until they lose confidence in the Fed's ability to keep the yield curve pegged where it is today. If the bond ever starts falling in price, they unwind the carry trade. Then you get a message, "Do not pass go." Sell your bonds, unwind your overnight debt, your repo positions. And the system then begins to contract... The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

From Casey Research

The New Economic Collapse Video: It makes uncomfortable but urgent viewing.

When Casey Research Chief Technology Investment Analyst Alex Daley met former Reagan Budget Director David Stockman to talk about the economy and where he sees it leading taxpayers investors and savers in the near future, he got some very intriguing insights from a man who served right at the heart of the US federal government.

True, some if it makes for uncomfortable watching, but the message is critical if you want to keep your assets safe in what David calls calls "the great unwind."

Watch the video and secure your money.


Full Transcript:

Interviewed by Alex Daley, Chief Technology Investment Strategist, Casey Research

Alex Daley: Hello. I'm Alex Daley. Welcome to another edition of Conversations with Casey. Today our guest is former Reagan Budget Director and Congressman David Stockman. Welcome to the show, David.

David Stockman: Glad to be here.

Alex: So we're here in Florida talking at the Recovery Reality Check Casey Summit. What do you think: is the United States economy on the road to recovery?

David: I don't think we are at the beginning of the recovery. I think we are at the end of a disastrous debt supercycle that has gone on for the last thirty or forty years, really. It started when Nixon defaulted on our obligations under Bretton Woods and closed the gold window. Incrementally, year after year since then, we have been going in a direction of extremely unsound money, of massive borrowing in both the private and the public sector. We now have an economy that is saturated with debt: $54 trillion or $53 trillion – 3.5 times the GDP – way off the charts from where it was for a hundred years prior to the beginning of this. The idea that somehow all of that debt is irrelevant, as the Keynesians would tell us, is fundamentally wrong – and the reason why the economy can't get up off the mat.

We're doing all the wrong things. We're adding to the problem, not subtracting. We are not allowing the debt to be worked down and liquidated. We're not asking people to save more and consume less, which is what we really need to do. And so therefore I think policy is just making it worse, and any day now we will have another recurrence of the kind of economic crisis we had a few years ago.

Alex: You paint a very stark picture, but if people just stop spending, start saving, won't companies like Apple see their earnings hurt? Won't the stock market then start to tumble, people's net worth fall? Isn't that a negative cycle that feeds on itself?

David: Sure it does, but you can't live beyond your means because it's pleasant. It's not sustainable. Clearly the level of debt that we have is not sustainable. We have a whole generation – the Baby Boom – that's about ready to retire, and they have no retirement savings. We have a federal government that is bankrupt, literally. Its [debt is] $16 trillion and growing by a trillion a year. Something's going to give. We can't pay for all these entitlements. There won't be the revenue generation in the economy to do it.

So as a result of that, we are deluding ourselves if we think we can just continue to spend. Look at the GDP that came out in the first quarter of this year. It was only 2.2%. Most of it was personal consumption expenditure, and half of that was due to a drawdown of the savings rate, not because the economy was earning more income or generating more real output. It was because of a drawdown of savings. That is exactly the wrong way to go – an indication of how severe the crisis is going to be.

I'm not saying the economy should stop spending entirely. I'm only saying you can't save 3% of GDP and spend 97% if you are going to get out of this fix. As the savings rate goes up both in the public sector (which means reduction of spending and the deficit) and the household sector (to seriously reduce debt burden, which has not really happened) we are going to, on the margin, spend less, save more. It will slow down the economy. It will undermine profits, I agree. But profits today are way overstated. They're based on a debt-bloated economy that isn't sustainable.

Alex: So we can only live beyond our means for so long, as any family knows.

David: Yes.

Alex: Now, the government can reduce its expenses at any time by simply reducing spending, and it can reduce debt if it brings in more tax revenue. That's austerity – I think that's how they refer to it. But won't austerity cause massive joblessness? Won't there be millions more people in this country not receiving a paycheck?

David: Yes, but the critique, the clamoring and clattering that you hear from the Keynesians (or even mainstream media, which is pretty clueless economically) that austerity is bad forgets the fact that austerity isn't an elective course. Austerity is something that happens to you when you're broke. And yes, it is painful and spending will go down and unemployment will go up and incomes will be impaired, but that is a consequence of the excess debt creation that we've had for the last thirty years. So austerity is what happens when you break the rules.

And somehow we have this debate going on. They're making a mistake. They chose the wrong strategy. Do you think Greece chose the wrong strategy with austerity? No. No one would lend them money. That's why they ended up in the place they were. Do you think that Spain today is teetering on the brink because they said, "Oh, wouldn't it be a good idea to have austerity?" No, they had a gun to their head. They were forced to do this because the markets would not continue to lend, and even now their interest rate is again rising. The markets are losing confidence, and unless the ECB prints some more money and bails them out some more, they are going to have austerity. So the austerity upon us is the backside of the debt supercycle we had for the past thirty years. It's not discretionary.

Alex: Austerity hasn't been forced upon us yet. The dollar is up, people are continuing to buy Treasuries – both nations and banks are buying Treasuries. To all extents and purposes, people are continuing to show massive confidence in the US government, lend it money at extremely cheap interest rates, and letting it build up its debt.

So you are advocating that, unlike Greece or Spain taking it to the edge and having austerity forced on them, we should volunteer for austerity today? Instead of just kicking the can down the road and living high a little bit longer, until the bill collectors finally come knocking? Why go today, why start austerity now instead of doing what Greece did and going as long as you possibly can?

David: Because Greece is a $300 billion economy. Tiny. A rounding error in the great scheme of things. It's – last time I checked – about eight and a half months' worth of Walmart sales. Okay? That's a little different than when you have the $15 trillion heartland of the world economy, and the $11 trillion Treasury market which is at the center of the whole global financial system buckle and falter. That's the risk you're taking if you say, "Mañana. Kick the can; let's just wait for something good to happen."

This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they're doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank. And they will keep laughing all the way to the bank on Wall Street until they lose confidence in the Fed's ability to keep the yield curve pegged where it is today. If the bond ever starts falling in price, they unwind the carry trade. They unwind the repo, because then you can't collect 190 basis points.

Then you get a message, "Do not pass go." Sell your bonds, unwind your overnight debt, your repo positions. And the system then begins to contract – exactly what happened in September and October of 2008. Only, that time it was an unwind to the repo on mortgage-backed securities and CDOs and so forth. That was a minor trial run for the great unwind that is going to happen when the Treasury market is finally shattered with a lack of confidence because, on the margin, no one owns a Treasury bond: they just rent it on borrowed money. If the price starts falling, they'll get out of that trade as fast as they got out of toxic CDOs.

Alex: So when people run away from the US, they will run away all at once.

David: Well, if they run away from the Treasury, it sends compounding forces of contagion through the entire financial system. It hits next the MBS and the mortgage market. The mortgage market then scares the hell out of people about the housing recovery, which hasn't happened anyway. And if there isn't a housing recovery, middle-class Main-Street confidence isn't going to recover, because it is the only asset they have, and for 25 million households it's under water or close to under water.

Alex: We saw something much like that in 2008. All the markets correlated. Stocks went down. Bonds went down. Gold went down with them. It sounds like what you're saying is that the Fed is effectively paying bankers to stay confident in the Fed, and that the moment that stops – either because the Fed stops paying them or something else shakes their confidence – this all goes down in one big house of cards?

David: Yes, I think that's right. The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

Alex: Last night you told our audience that if you were elected president, the first thing you would do is quit. Or at least demand a recount, I believe were your words, which I thought was telling. Are you saying there are no policy changes we could make today that would get us out of this? Or at least that wouldn't get you assassinated?

David: Yeah, there is a paper blueprint. People who believe in sound money and fiscal responsibility, that you create wealth the old-fashioned way through savings and work and effort and not simply by printing money and trading pieces of paper – there is a plan that they could put together. One would be to put the Fed out of business. You don't have to "end the Fed," although I like Ron Paul's phrase. You have to get them out of discretionary, active, day-to-day meddling in the money markets. Abolish the Open Market Committee.

The Fed has taken its balance sheet to $3 trillion. That's enough for the next 50 years. They don't have to do a damn thing except maybe have a discount window that floats above the market, and if things get tight, let the interest rate go up. People who have been speculating will be carried out on a stretcher. That's how they used to do it. It worked prior to 1914. That's the first step: abolish the Open Market Committee. Abolish discretionary monetary policy.

Let the Fed, if you're going to keep it – I don't even know that you need to do that, but if you are going to keep it – be only a standby source. As Badgett said (Walter Badgett, the great 19th-century British financial thinker): provide liquidity at a penalty rate to sound collateral.

Now, that's what J.P. Morgan did in 1907, in the great crisis of 1907, from his library. He didn't have a printing press. He didn't bail out everybody. He didn't do what Bernanke did and say: "Stop the presses, freeze everybody, and prop up Morgan Stanley and Goldman Sachs and all the rest of the speculators." The interest rate, the call-money interest rate, which was the open-market interest rate at the time, some days went to 30, 40, 70% – and they were carrying out the speculators left and right, liquidating margin debt, taking out the real estate speculators. Eight or ten railroads went bankrupt within a couple of months. The copper magnates got carried out on their shields.

This is the only way a capital market can work, but it needs an honest interest rate. And we have no interest rate, so therefore we solve nothing and we have the kind of impaired, incapacitated markets that we have today. They're very dangerous, because they're all dependent on twelve people. It is what I call "the monetary Politburo of the Western world," and they are just as dangerous as the Politburo in Beijing or the Politburo of memory in Moscow.

Alex: A twelve-person Open Market Committee determining the future of our economy by manipulating rates. Sounds like central planning to me.

David: It is. They are monetary central planners who are attempting to use the crude instrument of interest-rate pegging and yield-curve manipulation and essentially buying debt that no one else would buy, in order to keep this whole system afloat. It's Ponzi economics. Anybody who had financial training before 1970 would instantly recognize this as Ponzi economics. It is only because of the last twenty years we got so inured to prosperity out of the end of a printing press and massive incremental debt that people lost sight of the fundamental principles of sound money, which, there's nothing arcane about it. It's just common sense. It is not common sense to think that 50, 60, 70% of all the debt that's being created by the federal government can be bought by the Federal Reserve, stuffed in a vault, and everybody can live happily ever after.

Alex: So the government has certainly put us in a precarious position, but I don't think they alone have put America in this position, have they? You mentioned consumer debt becoming a major burden on the economy. How do we shed ourselves of that? I mean, the federal government can repudiate its debts if we walk away from it. We might see a few wars or something from that. It could inflate its way out of it. It can tax its way out of it. But how do households get out from under the debt burden that they have today?

David: Well, it's very tough, and they were lured into it by bad monetary policy when Greenspan panicked in December 2000. The interest rate was 6.5%; we had an economy that was threatened by competitors around the world. We needed high interest rates, not low. He panicked after the dot-com crash, and as you remember in two years they took the interest rate all the way down to 1%, and they catalyzed an explosion of mortgage borrowing, which was crazy.

When they cut the final rate down to 1% in May, June 2003, in that quarter – the second quarter of 2003 – the run rate of mortgage borrowing was $5 trillion at an annual rate. That was nuts! There had never been even a trillion-dollar annual rate of mortgage borrowing previously. In that quarter the run rate was $5 trillion, 40% of GDP. Why? Because the Fed took the rate down to 1%. Floating-rate product got invented everywhere. Anybody that had a pulse was being given mortgage loans by the brokers. The mortgage brokers didn't have any capital or funding. They went to Wall Street. They got warehouse lines, and the whole thing got out of control. Millions of households were lured into taking on debt that was insane, and now we have a generation of debt slaves.

There are 25 million households in America who couldn't move if they wanted to, because their mortgages are under water. They cannot generate a down payment and the 5% or 6% broker fee that you need to move. So we've got 25 million households immobilized, paralyzed, and worried every day about when they are going to lose property, because of what the Fed did. It's a terrible indictment.

Alex: Mobility itself is the American dream, isn't it? It's the ability to pick up and find work and then move and do all that. So now we have people who are slaves to their debt. How do we get ourselves out of this? Is this just a matter of personal financial discipline? Is there a policy move that can happen?

David: It's policy. If we don't do something about the Fed, if we don't drive the Bernankes and the Dudleys and the Yellens and the rest of these lunatic money-printers out of the Federal Reserve and get it under the control of people who have at least a modicum of sanity, we are just going to bury everybody deeper.

It's unfortunate. The American people are as much a victim of the Fed's massive errors as anything else. People were not prudent when they took on debt at 100% of the peak value of their property at some moment in 2004 and 2005. They were lured into it. But now we're stuck with something that didn't need to happen.

Alex: The Federal Reserve was founded in 1914, and it saw America through World War I, World War II. It saw America through Vietnam, saw America through the biggest boom in the economic history of the world. Yet now, today, you are calling for the abolishment of the Fed. Wasn't the Fed here the entire time that America was a prosperous, growing, wealthy, technology-driven nation? What's changed?

David: The greatest period of growth in American history was 1870-1914 – the Fed didn't exist. Right after 1870, when we recovered from the Civil War we went back on the gold standard. It worked pretty well. World War I was a catastrophe for the financial system. The Fed financed it, but I don't give them any credit for that, okay? We shouldn't have been in that war. It was a stupid thing to get involved in. But once we got involved in it, the Fed printed money like crazy, it facilitated borrowing, set the groundwork for the boom of the 1920s and the collapse of the 1930s.

Even then though, we had great minds who coped with reality in a pragmatic way in the Fed. Even Marriner Eccles wasn't all that bad. He stood up to Truman in 1951, when Truman wanted to force the Fed to continue to peg interest rates at 2% or 2.5% when inflation was 5%. Then we had William McChesney Martin: brilliant, pragmatic. He wasn't some kind of gold-standard guy in a pure sense, but a pragmatic guy who understood that prosperity had to come out of private productivity, out of investment, out of risk-taking, and the Fed had to be very careful not to allow speculation to start or inflation to get ignited. In 1958, he invented the phrase, "The job of the Fed is to take the punchbowl away." And we had a small recession. Six months after the recession was over he was actually raising the margin rate on the stock-market loans in order to quell speculation, and raising interest rates so that the economy didn't start to inflate again.

Now that was the regime we had until, unfortunately, Lyndon Johnson came along with his "guns and butter," took William McChesney Martin down to the ranch, and beat the hell out of him and forced him to capitulate. But here's the point I would make: In 1960, at the peak of what I call the golden era – the twilight of fiscal and financial discipline – we had $30 billion on the balance sheet of the Fed. It had taken 45 years to build that up. Then, as they began to rapidly expand the balance sheet of the Fed during the inflation of the '70s and the '80s, even then it took us until September 2008 – the Lehman collapse – to get to $900 billion. Had the balance sheet only grown at 3%, which is what the capacity of the economy to grow, I think, really is, it would have been $300 billion, so they were overshooting.

Alex: We're three times where we should be.

David: Where we should have been by the Lehman crisis event. In the next seven weeks, this crazy lunatic who's running the Fed increased the balance sheet of the Fed by $900 billion, in seven weeks. In other words, they expanded the balance sheet of the Fed as rapidly in seven weeks as it had occurred during the first 93 years of its existence. And that's not all, as they say on late night TV: in the next six weeks they added another $900 billion. So in thirteen weeks they tripled the balance sheet of the Fed.

Alex: Wow, that's an incredible…

David: So no wonder we are in totally uncharted waters, and it's being run by people who are clueless as to how to get out of the corner they've painted this country into. They really ought to be run out of town on a rail.

Alex: I think you'd find that a lot of our viewers would agree with you on that one. You know, the average American is suffering. It looks like the average American is going to have to suffer more to get us out of this, but it seems like the only thing the Fed is interested in these days is propping up the stock market. Why is that? Where does that come from?

David: The Fed has taken itself hostage with this whole misbegotten doctrine of wealth effects, which was created by Greenspan. In other words, if we get the stock market going up and we get the stock averages going up, people feel wealthier, they will spend more. If they spend more, there is more production and income and you get a virtuous circle. Well, that says you can create wealth through speculation. That can't be true, because if it is true, we should have had a totally different kind of system than we've had historically.

So they got into that game, and then the crisis came in September, 2008. They panicked and pulled out the stops everywhere. As I said, tripled the balance sheet in thirteen weeks, [compared to what] they had done in 93 years. They are now at a point where they don't dare begin to reduce the balance sheet, begin to contract, or they'll cause Wall Street to go into a hissy fit. They are afraid to death of Wall Street going into a hissy fit, so essentially, the robots and the boys and girls and the fast-money traders on Wall Street run the Fed indirectly.

Alex: So, in the 1960s, the Fed is taking away the punchbowl. Sounds like in 2010 the Fed is the one adding the alcohol. They are afraid to stop, lest everybody riot.

David: Yes, they got the party going, and they're afraid to stop it. As a result of that you have a doomsday machine.

Alex: At some point we are going to be forced to stop. Market forces will kick in and Europe and China and India will stop lending us money.

David: Yes. As I say, when the crisis comes in the Treasury market, it will be the great margin call in the sky. They'll start unwinding all of the carry trades, all of the repo. Asset prices generally will be affected, because this will ricochet and compound through the system.

Alex: When does this happen?

David: People looked at the housing market and the mortgage market way back in 2003 – there were some smart people looking at this. They looked at the run rate of gross mortgage issuance, the $5 trillion I was talking about, and said: "This is insane, this is off the charts, this is so far beyond anything that has ever happened before, something bad is going to come of this." It's obvious, if you pour debt into markets… I mean a lot of people leveraged 98%, or whatever they were doing at the time with so-called mortgage insurance, and just high loan to value ratios. They were driving up prices, and so there was a housing-price boom going on. It was sucking the whole middle class into speculation. So that's the nature of the system, and now they don't know how to unwind it.

Alex: That's a pretty stark picture. So as an individual investor, what are we to do? How do we protect ourselves in this type of situation? Should I be owning bonds and staying out of stocks? Should I be owning stocks?

David: No, I would stay out of any security markets. These are unsafe markets at any speed. It's all tied together. As I was saying when the great margin call comes and they start selling the Treasury bond, they'll take everything else with it. Real estate is priced off Treasuries. Mortgaged-backed securities are priced off Treasuries. Corporates are priced off Treasuries. Junk bonds are priced off Treasuries. Everything. The stock market will go into a panic. We don't know when the timing will come – we've never been in a world where there is $15 trillion worth of central-bank balance sheets, like we have today. The only thing I think you can conclude is preservation is the only thing you are about as an investor. Forget about yield. Forget about return. Just keep yourself liquid and preserve your capital, because you can't predict the day when, as I say, the great margin call in the sky comes down.

Alex: So if it's not about coming out ahead, it's about coming out not behind everybody else. It's just losing a little less. What's the most effective way to do that? Do you want to hold cash? Alternative options?

David: Yes. I don't even think there's nothing wrong with owning Treasury bills. I mean, if you want to get, for a one-year Treasury, what is the thing now? Twenty basis points or something?

Alex: So when the great Treasury crash comes, I should own Treasury bills?

David: Well, it doesn't mean the price of the Treasury is going to crash, no.

Alex: Okay, so we are just going to see interest rates skyrocket on new issues. The US government is not going to be able to borrow.

David: That's why you're short. If you're in a thirty-day piece of paper, you're not going to lose principal.

Alex: What happens to the dollar in all of this? If I'm holding dollar denominated assets –?

David: Well, the dollar, in theory, people would think is going to crash. I don't think it is because all the rest of the currencies in the world are worse.

Alex: So once again, America is not that bad off.

David: Well, we're bad off because when the financial markets reprice drastically, it's going to have a shocking effect on economic activity. It's going to paralyze things. It's going to finally cause consumption to come down. It's going to cause government spending to be retracted.

You know, the Keynesians are right. Borrowing does add to GDP accounts. But it doesn't add to wealth. It doesn't add to real productivity, but it does add to GDP as it's calculated and published – because GDP accounts were designed by Keynesians who don't believe in a balance sheet. So they said, "If the public sector and the household sector are borrowing, let's say, $10 trillion next year, run it though GDP, you'll get a big bump to GDP." But sooner or later your balance sheet will collapse. They forgot about that one. So my point is that we've gone through a thirty-year expansion of the balance sheet, an artificial growth in GDP; now we're going to have to be retracting the collective balance sheets. That means that GDP will not grow. It may even contract, and no one's prepared for that.

Alex: So the economy will collapse. The dollar will be okay, because we still need a medium of exchange and the dollar is the least-bad currency in the world. How does gold fit into the picture? Do you think that gold is a good asset?

David: Yes, I think that gold is a good asset. It's the only currency that anybody is going to believe in after a while.

Alex: Okay, so maybe hold that as an insurance policy. Do you own gold yourself?

David: Yes, as an insurance policy.

Alex: Where else do you invest in today?

David: I'm preserving capital. I'm in cash. I don't think the risk of the system is worth it.

Alex: So you are practicing what you preach, 100%?

David: Yes.

Alex: That's great. It's good to hear. This is excellent advice for our subscribers as well, to consider that there's a lot of potential energy built up in the system. You've articulated it well, a lot of painful policy moves ahead of us, and probably something that makes 2008 look like a preview, if you will.

David: It was just a warm-up.

Alex: Just a warm-up. Thank you very much.

David: Thank you.


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Tue, 07/24/2012 - 19:53 | 2647538 Reese Bobby
Reese Bobby's picture

This is what you get when you piss off a crook.  At least he is entertaining, and seemingly honest now...

Tue, 07/24/2012 - 20:05 | 2647572 Tippoo Sultan
Tippoo Sultan's picture

"This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed..."

"Medicated rates" indeed -- a consumption-driven economy on poppers...coming hard off the high.

Tue, 07/24/2012 - 20:09 | 2647588 stocktivity
stocktivity's picture

"This market isn't real"

...or to put it in my terms...It's all Bullshit!

Tue, 07/24/2012 - 20:23 | 2647613 cranky-old-geezer
cranky-old-geezer's picture




Where's the risk in it?  Borrow at 0% and buy treasuries yielding 2%?  Where's the risk?

It's all rigged in banks' favor.   That's not a casino.


Tue, 07/24/2012 - 20:28 | 2647621 Fred Hayek
Fred Hayek's picture

The dealer facing you on the other side of the blackjack table doesn't seem to be facing much risk either. He's in a casino. You just have to know who's on which side of the felt covered table.

Tue, 07/24/2012 - 21:03 | 2647675 TheSilverJournal
TheSilverJournal's picture

Every major country in the world, except China, is unable to pay its bills without going deeper into debt. All while interest rates are at dead nuts lows. Low interest rates should only be earned on the safest of plays, but loaning to a broke country is clearly not a safe play. Once broke, a default can occur at any time, or it can be delayed until hyperinflation. That’s it. And once the whirlwind effect of inflation pushing up interest rates starts, the existence of the major currencies of the world, except the Chinese Yuan, will be measured in months.


Tue, 07/24/2012 - 21:29 | 2647726 Soul Train
Soul Train's picture

Stockman is right.

And I'll tell you what else. The FEDERAL RESERVE are spin-meisters who use certain segments of the financial media to do their spin work.

Read this one - it reeks of spin

Tue, 07/24/2012 - 22:12 | 2647795 Careless Whisper
Careless Whisper's picture

 "...this crazy lunatic who's running the fed..."  (@22:10)  

Tue, 07/24/2012 - 22:42 | 2647840 markmotive
markmotive's picture

So are property fact anything tied to the cost of money. But I guess that's half the point.


15 most expensive cities in the world:

Tue, 07/24/2012 - 22:58 | 2647875 old naughty
old naughty's picture

Gambling is additive...

So racing, stocks, currencies, like ponds, lakes, and oceans are all about flow, of money. They are all part of the credit now.

Contracting though, even LV.

Tue, 07/24/2012 - 23:13 | 2647891 LetThemEatRand
LetThemEatRand's picture

Stockman is to truth as the Fed is to sound monetary policy.  It's like a crack dealer telling you that it's bad for you.  As you hand over the cash.  He's right, and no one at fault is going to jail.

Tue, 07/24/2012 - 23:57 | 2648007 AldousHuxley
AldousHuxley's picture

lottery is tax on stupid

casino is tax on fools

stock market is tax on greed


Wed, 07/25/2012 - 00:03 | 2648019 LetThemEatRand
LetThemEatRand's picture

400 individuals have more wealth than half of America.  The Lotto is chump change to these fucks.  They already won the class war.

Wed, 07/25/2012 - 00:22 | 2648049 TheSilverJournal
TheSilverJournal's picture

The class that owns silver will win the war.

Wed, 07/25/2012 - 00:16 | 2648040 The Monkey
The Monkey's picture

Stockman has a good argument, but then it just meanders off to a crashing of the treasury market. That is unlikely anytime soon.

What is more likely, is that the Fed blows another giant bubble. I would say we're getting there.

Wed, 07/25/2012 - 06:58 | 2648329 Benjamin Glutton
Benjamin Glutton's picture

here is Benny "the Bucks" Bernanke telling the world that the Banks bailed out AIG with printed money from their own deposits parked at the Fed Res. 60 minutes talky March 9th 2009.


about 1 minute plucked from the 2+ hour documentary 97% Owned.

Wasn't Stockman Reagan's trickle down architect credit whore who killed the peace dividend while enabling Star Wars?

Wed, 07/25/2012 - 06:40 | 2648305 negative rates
negative rates's picture

That's simply not true. Saudi Arabia has no debt at all and has continually given their citizens more of the nations oil wealth to the point  that they shut their wells in at $92 and wait for the price to rise to satisify the countries financial needs. Forget the Chinese, its the Saudi's, and the japs, and a few westerners who control the worlds past and current wealth.

Tue, 07/24/2012 - 20:39 | 2647641 Daily Bail
Wed, 07/25/2012 - 00:01 | 2648012 AldousHuxley
AldousHuxley's picture

how many of these kids live in homes where their parents voted for Bush (war) and lived large in houses they couldn't afford?


debt or not, most of them going to work for Chinese anyway so tell them to redo the video in Chinese.



Tue, 07/24/2012 - 21:16 | 2647694 taeonu
taeonu's picture

The "branch offices" are part of the casino.  They're the only one's that get to borrow from the discount window and then redeposit back at the Fed for a profit.  

Schmucks like you and me don't get that deal.  The banks borrow at around 0% from the Fed and we get to pay 20% on our credit cards.

Tue, 07/24/2012 - 22:37 | 2647837 ebworthen
ebworthen's picture

The risk is for any individual who has tried to save and invest.

People being held captive in pensions, IRA's, 401K's, or other attempts to be responsible.

Their assets are the butter that toasts the bankers bread; and they get the crumbs.

Tue, 07/24/2012 - 22:51 | 2647857 Yes_Questions
Yes_Questions's picture



My name is Dimary Prealer, and I'm gableholic.


Tue, 07/24/2012 - 23:07 | 2647893 rayduh4life
rayduh4life's picture

Uh, Cranky, isn't that the idea of a casino - things rigged in the houses (banks) favor?

Tue, 07/24/2012 - 21:21 | 2647707 Moon Pie
Moon Pie's picture

Other than that...things are looking up.  Giants v. Dallas opener in 43 days.  Yay!

Tue, 07/24/2012 - 21:32 | 2647733 azzhatter
azzhatter's picture

Cost of capital has to reflect the value of capital in an honest market. This is a fucking disaster and Ben Bernanke should be ass fucked by a clydesdale before being tried for treason

Wed, 07/25/2012 - 08:25 | 2648468 sessinpo
sessinpo's picture

You are so cruel!   You would really do that to a clydesdale?

Tue, 07/24/2012 - 20:52 | 2647663 Peter Pan
Peter Pan's picture

As they say, every saint has a past and every sinner has a future. I watched him and got a good historic overview which is crucial. What should be clear to readers s that not only is physical gold and silver an imperative but so is physical cash because when the fractional reserve system starts to fold I am not sure that lining up at the bank will serve any purpose.

Wed, 07/25/2012 - 05:31 | 2648272 cossack55
cossack55's picture

Depends on how many matches you have with you.

Tue, 07/24/2012 - 21:49 | 2647760 yrad
yrad's picture

I work for a major bank. I'm not in investments and I've never seen a portfolio. I'm just a guy who works with business accounts. Ive visited this site daily for a few months now and I have had a crash course on investor lingo and sentiment. It's educating. Fuck robottrader and Ben. Humorous...

There has been a lot of high dollar clients yanking cash. A lot... And they are putting it in pm. The conversations with them are all the same. Get out.... Many with Fed contacts (you can guess my city now.)

It's a joke around the office about my food storage project and gardening. I don't feel so crazy now. This shit is real.

I'm not nor have I ever been "doomsday." But if a bunch of ignorant, scared, hungry people are caught with their pants down, I won't be among them. Me and my wife will be fully loaded and fed.

Hello ZH. My name is yrad.

Tue, 07/24/2012 - 23:45 | 2647983 Anusocracy
Anusocracy's picture

Don't forget bottled alcohol for bartering.

Wed, 07/25/2012 - 00:37 | 2648077 RockyRacoon
RockyRacoon's picture

Telling folks that you are prepping wasn't your best move.   When things get rough you'll be seeing them banging on your front door.   Got ammo?

Wed, 07/25/2012 - 00:59 | 2648106 knukles
knukles's picture

He'll just fire up his generator to light up his neon "Beer Pussy & Ammo" sign.

(Missed the part about humility....)

Tue, 07/24/2012 - 22:07 | 2647782 luna_man
luna_man's picture



Yeah, may be a "crook", but,  boy he sure sounds like the man to right this sinking ship! 

Tue, 07/24/2012 - 23:46 | 2647986 HardAssets
HardAssets's picture

It would be freshing to have someone around who had a combination of intelligence w/ integrity, knowledge & respect for the US Constitution,  ability to communicate to the people, military knowledge/experience, and knowledge of Wall Street & banking (takes a crook to know what the crooks are up to ) - - - -

A combination of Thomas Jefferson, George Washington, and Joe Kennedy

Tue, 07/24/2012 - 23:56 | 2648006 yrad
yrad's picture

Ya, somebody like Ron Paul..oh wait

Wed, 07/25/2012 - 08:27 | 2648479 madcows
madcows's picture

Ron Paul would be great if he thought Iran shouldn't have the bomb.

The first obligation of the federal government is to protect me from my enemies, and Iran is enemy #1.

Tue, 07/24/2012 - 19:54 | 2647543 fonzannoon
fonzannoon's picture

The ten year is 2%? Not to nitpick but when was this interview done? He is a little off.

Tue, 07/24/2012 - 20:05 | 2647582 Dr. No
Dr. No's picture

"that's, that's nit-picking, isn't it?"

Tue, 07/24/2012 - 20:32 | 2647626 Jay Gould Esq.
Jay Gould Esq.'s picture

"Abolish the Open Market Committee."

Post tenebras, lux. +1.

Tue, 07/24/2012 - 21:06 | 2647682 Bananamerican
Bananamerican's picture

I think this is one of the best things I've ever read on ZH.

Cogent, concise, no's going out to everyone i know....

Tue, 07/24/2012 - 20:07 | 2647583 AllWorkedUp
AllWorkedUp's picture

 Yeah he is. Ten-year hit below 1.4% today which means anyone who is buying is absolutely, certifiably insane. The sooner we start hanging these guys, the better.

Tue, 07/24/2012 - 20:21 | 2647606 CrashisOptimistic
CrashisOptimistic's picture

If you bought at 2%, you made some nice money price increased via the yield smashdown to 1.49%.

And if you buy at 1.49% you may make a TON of money down to -0.75%.

Welcome to relentless, grinding, perpetual deflation.

Tue, 07/24/2012 - 20:37 | 2647635 fonzannoon
fonzannoon's picture

welcome to bubble mania.

It seems to me what Stockman may be wrong about is the dollar. The day other countries force our hand is the day we really see what Bernanke is made of. If we think he is printing now wait till he is faced with total annihilation of the capital markets or hyperinflating our way out. Thats the choice that will have to be made.

Tue, 07/24/2012 - 21:17 | 2647700 JLee2027
JLee2027's picture

Yup. I see vaporization of all dollar debt and "wealth" of all asset classes; 401K's, pensions, bank accounts, T-bills, etc. The only survivors will be in hand - holders of Gold and Silver.

Tue, 07/24/2012 - 22:47 | 2647850 kito
kito's picture

stockman is absolutely right about the dollar...although i would add that the money needs to be in physical cash....when the entire world of electronic dollars gets wiped, the only thing standing will be the cashmoney.......the entire expanding universe of credit/debt gets wiped away in one fell swoop of deleveraging....entire institutions will crumble....and what everybody will run for is cash, cash, cash...certainly by all means diversify, nobody can ever say with a crystal ball what will be......keep some gold, get a renminbi account, but cold hard cash will rule the day when this thing topples......

Wed, 07/25/2012 - 02:25 | 2648183 J U D G E M E N T
J U D G E M E N T's picture

As a reinforcement, my grandmother of 100 years now, lived thru the

great depression.  She can be quoted as saying that

"Dollars were worth something, its just that no one had any."

Money scarcity.

Tue, 07/24/2012 - 22:02 | 2647777 Ricky Bobby
Ricky Bobby's picture

Crash Is it deflation or is it financial repression. Of course you won't know when the real policy changes, unlike the insiders. So the ton of money you speak of may be Corzined before you get your hands on it.

Tue, 07/24/2012 - 19:54 | 2647548 Seasmoke
Seasmoke's picture

Wall Street has always been a casino.....its the changing of the goal posts that has become the problem

Tue, 07/24/2012 - 20:07 | 2647585 nasa
nasa's picture

It doesn't help that the refrees are under the hood watching  "training videos" instead of calling the game.  A few perp walks would go a long way....

Tue, 07/24/2012 - 19:55 | 2647549 FinalCollapse
FinalCollapse's picture

"Riders on the storm.

 There's a killer on the road"

Tue, 07/24/2012 - 19:56 | 2647555 HelluvaEngineer
HelluvaEngineer's picture


Tue, 07/24/2012 - 22:15 | 2647808 treasurefish
treasurefish's picture

Bury the corpse now.

Tue, 07/24/2012 - 19:56 | 2647556 Dr. No
Dr. No's picture

Let's sort the buyers from the spiers....

And the one who trust me from the ones who don't.....

If you can't see value here, your not shopping, your shop lifting.

Tue, 07/24/2012 - 20:05 | 2647558 Racer
Racer's picture

If you go over your overdraft you are lucky if you only have to pay 18% to the banksters... if you have a credit card... think many many % more to the banksters

no rules for banksters, lots of rules, jail and punishment for the poor people who are being turned upside down and their pockets picked every second with no punishment for the perpetrators... the banksters and their criminal buddies the politicians and psychopathic corporations.

They have changed laws so it is a criminal offence for doing nothing on your own, .not  sowing seeds... and failing to tell them you didn't sow any seeds!

 a UK law written for corporations!

Tue, 07/24/2012 - 19:58 | 2647560 kito
kito's picture

"The Capital Markets Are Simply A Branch Casino Of The Central Bank"


now i understand why vegas gambling has been in a slump!!!....the casinos have been hijacked by the fed!!!!!...

Tue, 07/24/2012 - 19:59 | 2647565 sgt_doom
sgt_doom's picture

There's an old saying in finance:  If David Stockman has finally gotten "it" --- everyone should have gotten it!

Destruction By Design

We endlessly heard that hedge fund doods, like John Paulson, were savvy financial geniuses, super traders!

Then we learn that Paulson got together with Goldman Sachs and put together a CDO (perhaps more than just one??) that was designed to fail.  Paulson's hedge fund then purchased a bunch of credit default swaps (termed "naked swaps") against that designed-to-fail CDO, ensuring that a big payday was to follow.

Paulson would purchase CDSes at $1.4 million apiece, with a payout of $100 million apiece --- quite the rigged mega-deal!

And that's one of the reasons that they bailed out AIG --- to make good on Paulson's rigged deal, and those of Goldman Sachs, JPMorgan Chase, Morgan Stanley, et al.

It wasn't like Paulson had some magical crystal ball, or awesome financial skills, plus the guy behind the housing bubble, the Federal Reserve's Alan Greenspan, had gone to work for Paulson at his hedge fund!

Next we learn that hedge fund doods routinely requested the manipulation of LIBOR rates to benefit their various deals; so for all we know, Paulson may very well have requested rate manipulation to make that CDO deal more attractive, along with lucrative rates on all those swaps he purchased which made him a fortune?

So we now realize the gargantuan size of this mind-boggling fraud manipulation, this global racketeering:  CDO deals, ARM rates manipulation for various credit derivatives benefitting the dealers and banksters and hedge fundsters, all those interest rate swaps to doom cities and municipalities being manipulated along with the Fed's downturn on interest rates, and those syndicated leveraged loans between 2005 to 2007 from the top bankster gangsters to the private equity firms specifically for their LBOs (leveraged buyouts, creating debt to the max to profit themselves, while destroying companies, jobs and industries).

This is what klepto-plutocracy looks like . . . .


Tue, 07/24/2012 - 20:42 | 2647646 El Oregonian
El Oregonian's picture

You know that's why these people, some much sooner than later, will find themselves crying for a drop of water on their tongues where their headed.

HINT: They won't be needing any coats when they get there...

Tue, 07/24/2012 - 21:40 | 2647747 ZeroAvatar
ZeroAvatar's picture


Tue, 07/24/2012 - 22:14 | 2647805 treasurefish
treasurefish's picture

Congratulations.  That was so depressing, I started crying.  When my little girl asked why I was upset, I told her, and she cried too.  You made a little girl cry.

Wed, 07/25/2012 - 05:37 | 2648276 cossack55
cossack55's picture

That is what "reality" is all about. Give the child another blue pill.

Tue, 07/24/2012 - 23:33 | 2647964 GMadScientist
GMadScientist's picture

Pyros with pipebombs on peyote.


Tue, 07/24/2012 - 20:04 | 2647575 Scarlo
Scarlo's picture

Correct me if I'm wrong, but I remember reading somewhere that there have been various points in history where the FED manipulated and controlled rates (pushing them higher to control inflation, or keeping them down to spur growth) using open market operations. I fail to see how this time is "different". In which case, have the capital markets always been broken?

Tue, 07/24/2012 - 22:28 | 2647824 FreedomGuy
FreedomGuy's picture

As a non-trader but hobby economist, it is clear to me, a relative layman that there is a problem. Virtually every government in the world except China and Saudi Arabia needs records amounts of money with dubious abilities to repay it. Classical economics would say the demand for money is huge while the supply is limited, especially with the worldwide economic doldrums. Risk is also very high. One would predict the price of money would be at record highs which would make my mom and grandma very happy with their fixed income investments. Times would be great for net savers including Chinese peasants who loan rich Americans their hard won money to pay tax deficits.

However, we see the exact 180 degree opposite! Money, especially in the highly leveraged United States is at record lows! Mom and grandma have virtual zero coupon payments. How is this possible except for virtually criminal market manipulation by all central banks?

Is the Fed still buying over 60% of all treasury issues? Can someone explain who actually finances the Fed buy? Where does that money come from outside of a spreadsheet notation? If the government defaults who suffers the losses in the Fed purchases?

Wed, 07/25/2012 - 10:57 | 2649321 Ned Zeppelin
Ned Zeppelin's picture

The Fed is where the FRNs aka USDs are printed into existence. No financing required.

Wed, 07/25/2012 - 00:58 | 2648101 JohnG
JohnG's picture



I would agree to most of that 60 years ago.  Monetary policy did matter. 

See only The Fed is invovlved so many ways with all markets it has become a manupulative monster.  We have Big Bank Policy now. 

That is what is different.

Tue, 07/24/2012 - 20:04 | 2647577 km4
km4's picture

+100 to David Stockman for calling the ponzi scheme black

Tue, 07/24/2012 - 20:54 | 2647664 knukles
knukles's picture

Ponzi was an Italian

Tue, 07/24/2012 - 23:31 | 2647958 GMadScientist
GMadScientist's picture

But the suckers were Americans and Canadians.

Wed, 07/25/2012 - 08:32 | 2648496 sessinpo
sessinpo's picture

Hmmmm. Black Italian.

Tue, 07/24/2012 - 20:08 | 2647590 THE DORK OF CORK
THE DORK OF CORK's picture

This guy was up to his tits in the 80s experiment.

He has no Credibility.

Austerity is not what it seems......

It is not to save real resourses.... it is to save a stock of debt.

A metaphysical concept.

Debt is not wealth.

But this guy wants to reduce the medium of exchange and destroy economies like the rest of them.

Greece is not a $300 billion dollar economy , it is a country.

Whats a $ ?

He says the market is not real.

But claims the $ is..real.!!!!!!

Countries are real ... the $ is a concept.

Tue, 07/24/2012 - 20:15 | 2647599 CH1
CH1's picture

This guy was up to his tits in the 80s experiment. He has no Credibility.

Dude, the 80s were 30 years ago. People are allowed to fix themselves.


Tue, 07/24/2012 - 20:25 | 2647615 THE DORK OF CORK
THE DORK OF CORK's picture

This guy not only believed in 19th century like free Banking but also these free banks could create $$$ on their balance sheet ......making this a much worse crisis as the free banks of the past merely issued / created their own money rather then $$$$$

The man has no credibility.

See this excellent video below.

We are living with the consequences of the post 1980 world baby.

Tue, 07/24/2012 - 21:26 | 2647638 Dr. Engali
Dr. Engali's picture

We are living with the consequences of the post 1913 world made worse by Roosevelt in 1933 then killed off by Nixon in 1971. Having the worlds reserve currency after WWII was an awsome responsibility that we took advantadge of. Now it's time to pay the piper.

Tue, 07/24/2012 - 20:43 | 2647648 Reese Bobby
Reese Bobby's picture

Stockman was once a very bad person, IMO.  But on a relative basis he was always less bad than was expected of him.  He was almost naive in many ways and vulnerable to manipulation by others.  But you don't seem to have any grasp on the progression of the Global Bank Cartel's full take-over of this Country.  I think simple is good for you so consider this:  Stockman was forced out of OMB in 1985.  Donald Regan became Reagan's Chief of Staff at the same time.  The latter event was the single best marker of the unstoppable "beginning-of-the-end."  Think about it...

Tue, 07/24/2012 - 23:30 | 2647952 GMadScientist
GMadScientist's picture

Cue Silverado Savings and Loan (and 700 some odd of their closest friends).

Your real estate pool investment? Aaaaaaand it's gone!!

A very good trial run on the "shake and bake" approach to dynamic modern fascism.

Tue, 07/24/2012 - 20:56 | 2647665 knukles
knukles's picture

Hell, I still get flashbacks from the '70's.

Tue, 07/24/2012 - 20:24 | 2647614 CrashisOptimistic
CrashisOptimistic's picture

A valid point, but you didn't finish.

Money is a metaphysical concept.  Eve didn't pay money for that apple.  Money's value exists only in your head.

The bad news for ZH is, this is also true of Gold.  Gold has no value outside one's head.

Only food and oil have value outside one's head, and the value of food exists only if you get it transported to your hand, via oil.

Food's value is measured in calories.  Oil's in BTUs.  

Tue, 07/24/2012 - 21:54 | 2647765 engineertheeconomy
engineertheeconomy's picture

Death is life. Sure, we understand you.

Tue, 07/24/2012 - 22:35 | 2647833 FrankDrakman
FrankDrakman's picture

Funny how human beings managed to survive from the dawn of civilization up to about 1850 without ever using oil as anything but a lubricant.

Thu, 09/27/2012 - 07:17 | 2834762 Offthebeach
Offthebeach's picture

Liquid carbon, common as dirt. We'll never run out, except for political reasons like the Irish and the Corn Laws, or the 1930s Ukraine under central planning.

Tue, 07/24/2012 - 23:16 | 2647919 Reese Bobby
Reese Bobby's picture

At the risk of wasting time I'll comment anyway.  The simplest definition of "metaphysical" is "abstract".  Money is not meant to be abstract.  It is meant to be a dependable store of value.  Fiat currency can be created with a keystroke in our modern monetary system.  Gold has been a reliable currency for a long time.  I'm no historian but some claim the Sumerians date to 4000 BC and based their monetary system on a store of gold.  Why gold?  Well it doesn't degrade like your food stock.  And oil wasn't viewed as having any value until very recently in terms of time.  So it seems incredible to many people to hear a 2012 person like yourself declare this is the magic moment where gold is no longer a legitimate currency/store of value.  To a guy like me it reminds me of $250/oz gold during the internet bubble and all the 20-something analysts who considered gold a sad relic of the past.  ALL hard assets can be a good store of value but gold is special in some ways.  Supply is predictable, forgery is clumsy and rare, and some of us think is is very valid compared to a fiat currency that can be deflated with the keystroke of an extra zero, or five.  Finally, test your money is "metaphysical" concept by running out of it.  Only then can one appreciate just how "real" money is.


"The more lucidly we think, the more we are cut off: the more deeply we enter into reality, the less we can think."  God Bless.

Wed, 07/25/2012 - 02:33 | 2648188 delacroix
delacroix's picture

try making a mirror, or a solar panel, without silver. It definitely has value, outside my head.

Tue, 07/24/2012 - 21:12 | 2647688 JuicedGamma
JuicedGamma's picture



Tue, 07/24/2012 - 21:39 | 2647739 Cursive
Cursive's picture


No credibility?  He earned his credibility when he resigned from the Regean administration because he wouldn't tow the line on Reaganomics.  Stockman was just as vocal a critic of easy money then as he is now.

Tue, 07/24/2012 - 22:02 | 2647778 THE DORK OF CORK
THE DORK OF CORK's picture


What was the great mistake of Jackson ?

He rightly broke the Bank but he allowed free banking to continue creating chaos in the economic system.


This guy was much worse - he considered that banks were free to produce credit at will but also produce $ credit...the coin of the realm.

I would advise you to listen to the S & L video I posted.

The Reagan Admin. was rotten to the core.

Tue, 07/24/2012 - 22:27 | 2647820 Ricky Bobby
Ricky Bobby's picture

Hey dork I will take free banking any day over what we have know. A free market is where everyone has equal opportunity to be a crook. 

Wed, 07/25/2012 - 01:02 | 2648109 JohnG
JohnG's picture

You're right and sadly I'm ok with this reality.

Tue, 07/24/2012 - 22:02 | 2647779 THE DORK OF CORK
THE DORK OF CORK's picture


What was the great mistake of Jackson ?

He rightly broke the Bank but he allowed free banking to continue creating chaos in the economic system.


This guy was much worse - he considered that banks were free to produce credit at will but also produce $ credit...the coin of the realm.

I would advise you to listen to the S & L video I posted.

The Reagan Admin. was rotten to the core.

Wed, 07/25/2012 - 01:04 | 2648115 putaipan
putaipan's picture

and that's what i was tryin' to say about barofsky yesterday....but you were having none of it. barofsky was the only thing i've seen oboma do right, and they were having none of it too. i haven't read the book, but i'd venture that barofsky has a better solution to offer than 'austerity'.

Tue, 07/24/2012 - 22:46 | 2647832 Dr. Engali
Dr. Engali's picture


Tue, 07/24/2012 - 22:47 | 2647849 Dr. Engali
Dr. Engali's picture

30 years ago I was a democrat. 20 years ago I was a republican. Now it's a pox on both of their houses because I know the truth. People change their views over time as they learn and they grow . I certainly hope you don't think the same way now that you did in highschool.

Wed, 07/25/2012 - 00:12 | 2648025 HardAssets
HardAssets's picture

People are real . . . the rest of it is all a concept.

Like in Iceland . . . the people should tell the banksters (and the politicians they own) . . . to completely bugger off. 

We were 'loaned' 'money' made up out of thin air . . . by crooks running a con game that they hid from us.

The question is. . . Will people allow themselves to continue to be conned ?  For how long ?  Months ? Years ?  A Century ?

Will they allow illusions to continue dictating what is real ? 

Life is so short for all of us.  Such a waste of the brief tiime we're given to live our lives.

Wed, 07/25/2012 - 06:40 | 2648306 Offthebeach
Offthebeach's picture

Buy his 30 year old book, used for a dollar, The Triumph Of Politics. He was the same. It really pissed of a lot of Reagan Kook -Aid drinkers.

Tue, 07/24/2012 - 20:09 | 2647591 chump666
chump666's picture

Stockman keeps it real as does Cashin

Tue, 07/24/2012 - 20:14 | 2647597 Seize Mars
Seize Mars's picture

It seems to be a trend lately, the world's worst people coming out and claiming to be incredulous at the current crime spree. Like, do you think we've forgotten, Mr. Stockman, you are part of it?

Tue, 07/24/2012 - 21:05 | 2647656 Reese Bobby
Reese Bobby's picture

Because it has been so united with the devil it is vital for a person to receive from God a change of mind before he can receive a new heart.

Tue, 07/24/2012 - 21:44 | 2647754 Cursive
Cursive's picture

@Seize Mars

What is wrong with you?  The man renounced he role as architect of the Reagan Revolution and has been saying essentially the same thing for 25 years, but you cannot find it in your way to give him any credit for speaking the truth for 25 years?  UFB.

Fri, 07/27/2012 - 10:01 | 2656319 Seize Mars
Seize Mars's picture


Well excuuuuuuuse. Meee. I'm pissed. Anyway what does UFB mean?

Tue, 07/24/2012 - 20:14 | 2647598 spinone
spinone's picture

As long as OPEC only takes dollars for oil, no worries.

Tue, 07/24/2012 - 21:40 | 2647748 Winston Churchill
Winston Churchill's picture

Watch this space,or better yet the Chinese Finance Minister.

He' making Hitlary look like a stay at home mum.

Tue, 07/24/2012 - 20:16 | 2647600 THE DORK OF CORK
THE DORK OF CORK's picture

David Stockman !!!!!!!

Why would you even interview such as fool.

1.04 H 30sec

Tue, 07/24/2012 - 20:18 | 2647603 max2205
max2205's picture

Cash is wack

Equity is meth

Bonds are vicodine

Derivatives is C4

Tue, 07/24/2012 - 21:06 | 2647683 chump666
chump666's picture


central banks are suicide bombers

Wed, 07/25/2012 - 01:06 | 2648116 JohnG
JohnG's picture



There will be big boom, and much withdrawal drama.

Tue, 07/24/2012 - 20:46 | 2647622 Bob
Bob's picture

No doubt functional capitalism does indeed require properly functioning capital markets, but when the participants of those markets are essentially supporting the financialization of the real economy and debt peonization of the nation's citizens, I think we (speaking as a citizen) have an even bigger problem.  Regardless of how hard it is to profitably trade. 

Michael Hudson: The Road to Debt Deflation, Debt Peonage, and Neofeudalism


Tue, 07/24/2012 - 20:32 | 2647625 Quinvarius
Quinvarius's picture

That is cool and all.  But as long as the banks have access to all the free money they want at 0%, they can never be forced to have a margin call no matter what happens.  Hence, the decision is whether or not the Fed chooses to send the banks out in body bags.  History says ZIRP until hyper-inflation to save the banks.  But we won't have hyper inflation too bad because the Fed will intervene in markets to keep prices down.  That means The Law of Maximum is back and no one will be able to profitably conduct business.  The economy will implode and things will become very scarce--Things like food.

Tue, 07/24/2012 - 20:36 | 2647631 q99x2
q99x2's picture

Thanks for the posting. Great perspective. Well presented.

Stay out of the markets. 2008 was a warm-up. Wall Street indirectly controls the FED. Preserve capital.

Don't look for returns lest it be the second coming.

Tue, 07/24/2012 - 20:37 | 2647637 DaylightWastingTime
DaylightWastingTime's picture

betting the hard 8 at the central bank craps game might end up winning you the long shaft

Tue, 07/24/2012 - 20:41 | 2647645 Offthebeach
Offthebeach's picture

There is yet so much more wealth to squeeze, debts to socialize upon the American Muppet class. Look at how GS, and others, sold/bribed interest rate swaps, waste water bonds to cities. Look how wealth has been extracted from the once wonder of the world cities of the east and Midwest. We are just at the start of the conversion of wealth to finanacialization and then flight

Tue, 07/24/2012 - 20:42 | 2647647 Yes_Questions
Yes_Questions's picture



So, the dollar is the worst currency.


Except for all the others and in a NY minute, the system can collapse, but the dollar will remain?


All righty then.

Tue, 07/24/2012 - 21:15 | 2647693 Cheyenne
Cheyenne's picture

excellent avatar.

if only you see what i've seen with your eyes.

Tue, 07/24/2012 - 21:31 | 2647732 Yes_Questions
Yes_Questions's picture



thank you.

Tue, 07/24/2012 - 20:44 | 2647650 Overpowered By Funk
Overpowered By Funk's picture

Muni bonds are at all time highs - it's where a LOT of private client money resides. No retail tsy buyers, but a few more CA chapter 9's and there will be many sellers hoping to realize gains - and the door won't be open very long. It'll be a free for all.

Tue, 07/24/2012 - 20:51 | 2647658 Cheyenne
Cheyenne's picture

who knows what stockman's angle is? here's what i do know. he's got a book coming out in it, he claims that the liquidity "crisis" of '08 involved wholesale lending against crap like mbs, it wasn't the retail horror story sold to main street about atm machines and payrolls.

that "interview" was as contrived as all get out, complete with internal quotation marks. just because he's smart doesn't mean he's not selling something.


Tue, 07/24/2012 - 20:53 | 2647661 earleflorida
earleflorida's picture

Looking Forward:

Beware -- If Romney gets elected he will fire Bernake? Bernake could be replaced by Alan Blinder. Both are/were tenured professors of economics at Princeton.

Alan Blinder is a "Thief",... caution!!!

*{he is a made man?}


Wed, 07/25/2012 - 00:48 | 2648091 LMAOLORI
LMAOLORI's picture



SERIOUSLY are you kidding Alan Blinder would be a hell of a lot better then bernanke did you read his current piece?

How Bernanke Can Get Banks Lending Again If the Fed reduces the reward for holding excess reserves, banks will have to find something else to do with their money, like making loans or putting it in the capital markets.



Fortunately, there is more the Fed can do. I have two out-of-the-box suggestions to make, one in today's column and another in a companion piece soon.

The simpler option is one I've been urging on the Fed for more than two years: Lower the interest rate paid on excess reserves. The basic idea is simple. If the Fed reduces the reward for holding excess reserves, banks will hold less of them—which means they will have to find something else to do with the money, such as lending it out or putting it in the capital markets.

The Fed sees this as a radical change. But remember that it paid no interest on reserves before the 2008 crisis and, not surprisingly, banks held practically no excess reserves then. In early October of that year, Congress gave the Fed authority to pay interest on reserves, which it promptly started doing. When the Fed trimmed the federal funds rate to its current 0-25 basis-point range in December 2008, it also lowered the interest rate on reserves to 25 basis points, where it has been ever since.

My suggestion is to push it lower in two stages. First, test the waters by cutting the interest on excess reserves (in Fedspeak, the "IOER") to zero. Then, if nothing goes wrong, drop it to, say, minus-25 basis points—that is, charge banks a fee for holding their money at the Fed. Doing so would provide a powerful incentive for banks to disgorge some of their idle reserves


The Fed's hostility toward lowering the interest on excess reserves is almost self-contradictory. When Mr. Bernanke lists the weapons the Fed plans to use when the time comes to tighten monetary policy, he always gives raising the IOER a prominent role. His reasoning is straightforward and sound: If the Fed makes holding reserves more attractive, banks will hold more of them. Why doesn't the same reasoning apply in the other direction?

But suppose it doesn't work. Suppose the Fed cuts the IOER from 25 basis points to minus 25 basis points, and banks don't lend one penny more. In that case, the Fed stops paying banks almost $4 billion a year in interest and, instead, starts collecting roughly equal fees from banks. That would be almost an $8 billion swing from banks to taxpayers. There are worse things.

in full

Tue, 07/24/2012 - 20:56 | 2647667 THE DORK OF CORK
THE DORK OF CORK's picture

When Greece or Ireland or whatever does Austerity the debt is not destroyed...........the debt gets transfered to someone else.

When Ireland exports goods rather then consuming the stuff....... others get into debt to buy the fucking goods......get it ?

Stockman wants a world where all the worlds money claims is in the Cayman Pirate islands and no consumption is allowed in the productive areas of the world so as to pay the interest to the rentiers & their whores.

The man is fucking retarded or more likely a JPM operative given his pining for the 1907 /1913 period. (a setup)

If you want to reduce the debt rather the money supply the treasuary can merely produce interest free notes.

You can't deflate this....... me thinks he wants to get his buddies to buy assets on the cheap.

The debt is done ... it has been created - you cannot undo it..... its  a record of the waste ,the money supply.



Tue, 07/24/2012 - 21:27 | 2647722 Reese Bobby
Reese Bobby's picture

I'm glad you gave yourself a thumbs up because the awesome stupidity of your comments are truly entertaining.  In many cases unintentional humor is the best.  Thanks.


"Ordinarily he was insane, but he had lucid moments when he was merely stupid."

Tue, 07/24/2012 - 21:33 | 2647735 One eyed man
One eyed man's picture

In the 1907/1913 period, governments didn't guarantee bank deposits. So if a bank made a lot of bad loans, the depositors suffered the loss, not the taxpayers. It seems to me that if Ireland had followed that policy, the Irish government would not have assumed all of that bad bank debt and there would be a lot less need for austerity now. But instead, the taxpayers of Ireland are paying for the mistakes of a few bad bankers and their greedy depositors who really should have known better. Doesn't that make you angry? It seems to me that Ireland would be a lot better off now if it had followed Stockman's formula.

Stockman criticized the Reagan administration for its budget deficits and stepped down. His main theme in the years since then is that governments should live within their means and not build up huge debts. I don't really see what is so wrong with that.

Tue, 07/24/2012 - 22:26 | 2647812 THE DORK OF CORK
THE DORK OF CORK's picture

I don't believe Goverments should get into debt to banks via defecits (they should just print the stuff as the note is as good as the bond)

However if you accept the principle that your goverment must get into debt to the banks then you must get into massive debt to them.

Otherwise they produce a mass of credit waste on the other side for houses and other grot.

Take it from me -Ireland had a effective zero goverment debt before the crisis but it did not matter in the end ...what mattered was the massive consumer malinvestment that was sustained when the goverment debts were low.

In this system all money is debt......its better if the debts are not leveraged....(goverment debt)

PS a depositer is also a deposits no tax.

Its a sick system......but two wrongs don't make a right.

There is a faction withen the capital markets who want to get rid of the FED.

But they are not altrustic entities......

They want to move to China just as they moved from the UK.

These vipers have no country.............the rabbit hole goes very deep.

Tue, 07/24/2012 - 21:00 | 2647673 Paracelsus
Paracelsus's picture

Well,Stockman was right about one thing,Supply-side economics.They said it would trickle down to us poor folks and he was right.IT IS TRICKLING DOWN NOW...

Tue, 07/24/2012 - 21:10 | 2647689 bobert
bobert's picture

David is brilliant and brave.

Tue, 07/24/2012 - 21:19 | 2647702 JuicedGamma
JuicedGamma's picture

Wonderfully done interview of one of the architects of today's mess.  Stockman I suppose doesn't see it that way, he seems to blame Nixon then Johnson but forgets Kennedy was the start of it all and that Reagan made it all right to run truly large (for the time) deficits.  As for his part in the whole mess I seem to remember it was his policy to cut taxes before cutting spending (supply side junk economics) that got the ball really rolling, it caused a mini real estate boom in 1986 even.

Bush II and Obama have just ramped things up a notch.  Parabolic debt binging will most certainly end badly.  And as Mr. Stockman says, only the timing is in question, the fuse is lit.



Tue, 07/24/2012 - 21:33 | 2647736 bobert
bobert's picture

Stockman was the balanced budget guru for Reagan. He was the only guy around that had actually read the mamoth congressional budget of that time and had a credible  plan to cut expenditures to equal tax revenues. His falling out with Reagan ocurred when the later lost his conviction for balancing the budget. Stockman became more and more agitated and frustrated at not being able to impliment his plan and eventually departed on very poor terms with the president.

I hate to admit it, as it was in the early 80's, but I was there and economically aware at the time.

Some younger readers here will hopefully enjoy the history lesson.

Wed, 07/25/2012 - 00:28 | 2648062 zebrasquid
zebrasquid's picture

Ditto, and your memory of events is accurate.

Tue, 07/24/2012 - 22:27 | 2647819 Savyindallas
Savyindallas's picture

Don't blame Stockman-he was one of the good influences on Reagan  -the idiot Ollie North with iran Contra  left open the door for the criminal Democrats to run off all the good reagonites after the first term, so all we had in the second term (when reagan was very old and losing it)  -were disgusting treasonous Bushites.

Wed, 07/25/2012 - 07:57 | 2648411 falak pema
falak pema's picture

So according to you second term presidents go flaccid or haywire. Thats not good for O'bammy!

It happened to both Clinton, the clitoris cigar player and GWB, the Abu Ghraib and Gitmo torture chamber keeper. 

What will O'bammy think up if he returns for four more years?

Tue, 07/24/2012 - 21:41 | 2647703 buzzsaw99
buzzsaw99's picture

It's a crooked casino. They always win, we always lose. If you choose not to play they will rob you in the alley.

Tue, 07/24/2012 - 21:23 | 2647711 The Axe
The Axe's picture

TRUE..yet the casino has was once fair in the house would always win eventually....It is now that the house rapes you while they win eventually. 

Tue, 07/24/2012 - 21:23 | 2647712 The Axe
The Axe's picture

TRUE..yet the casino has was once fair in the house would always win eventually....It is now that the house rapes you while they win eventually. 

Tue, 07/24/2012 - 21:24 | 2647717 surf0766
surf0766's picture

It is all just propaganda now. They know the end or big reset or whatever the current phase happens to be is coming. All they want is a little more time to finish the raping their friends are now doing.  

Tue, 07/24/2012 - 21:27 | 2647721 slewie the pi-rat
slewie the pi-rat's picture


chips! we need chips over here!

Tue, 07/24/2012 - 21:40 | 2647749 beentheredonethat
beentheredonethat's picture

the stockman historical problem analysis is dead on

Interest rate price controls- dead on--lowest interest rates in 350 years of good data.

fed now purchases (prints) 70% of treasury debt. besides a few speculators no one is left buying this crap. no chinese, no japanese, no one. If you are buying it like he says it better be on an overnight basis. 

where is this heading? how will it unfold? very difficult to predict. we are 6 siqma out of the historical swim lanes. anyone who professes to predict the unfolding of the ponzi is running with limited historical examples. When was the entire world this connected and dependent? what happens when the leading empire runs itself into the financial ground in this world? who knows. 

We do know that it might get ugly.

and btw, when you label low taxes, low regulation, low government and a focus on productivity as trickle down economics you betray your socialist beliefs. 

Tue, 07/24/2012 - 21:43 | 2647753 surf0766
surf0766's picture

We breakn' 1.20 tonight?

Tue, 07/24/2012 - 21:54 | 2647766 marz929
marz929's picture


Tue, 07/24/2012 - 21:58 | 2647775 Jlmadyson
Jlmadyson's picture

Ponzi economics indeed.

The fed balance sheet stats are simply amazing.

Tue, 07/24/2012 - 22:09 | 2647786 rawsienna
rawsienna's picture

Borrowing at 0 and investing at 1.5% is no different than borrowing at 3% and lending at 4.5%.  Other than the fact that short rates are pegged at zero , there is just less price upside but just as much downside  to the trade.  The issue with long term rates is simply inflation. IF there was 2% deflation then 1.5% 10s is still 3.5% real.  Why is that different than 3 percent inflation and 6.5% nominal yields? Fed has pegged rates below inflation in that they believe we need an extended period of negative real rates to minimize the damage from excessive debt. That is why they are scared to death of even a mild deflation or inflation close to zero.  After all, if we had low debt/gdp ratios a mild disinflation would be a good thing during a period of stagnant wages. 

Problem is that when the perception is that asset prices are disconnected from economic reality, people will hoard cash. And when the perception is that debt/gdp ratios will continue to climb to unsustainable levels, you have to consider that Ricardian equivalence so that acts like a perceived tax increase - a theory that Bernanke does not subscribe too.  Fed is very backward looking!!  SO, what we are left with is a real risk of deflation with the next slowdown and then a sustained period of high inflation (4% or greater) AFTER the EURO breaks up and several countries restructure their debts. 

Stockman may be right about some things but for the wrong reasons. 


Wed, 07/25/2012 - 12:25 | 2649733 FRBNYrCROOKS
FRBNYrCROOKS's picture

I think you discount the effect of rate increases on public perception with regards to lending. When interest rates are forced artificially low it acts to cool the real economy and keep investment money on the sideline because the public is uncertain about the direction/change in real interest rates. If you start to raise the Fed Funds rate by, let's say, 25 basis point for two consecutive FOMC meetings the consumer would percieve a risk of losing out on borrowing at lower rates and this would increase lending, stabilize real estate prices and spur economic activity. Keeping rates artificially low only keeps consumers on the fence anticipating falling housing prices and lower interest rates.

Tue, 07/24/2012 - 22:13 | 2647802 luna_man
luna_man's picture



Furthermore..."ZEROHEDGE" is the place to be!!



Tue, 07/24/2012 - 22:27 | 2647821 FRBNYrCROOKS
FRBNYrCROOKS's picture

I remember Stockman from the Reagan, Cold War era. He, and his buddy George Bush I, pursued the trickle down "vodoo" economic policies. He was the boy wonder of the reagan administration.

I have been ranting (not here) about this for 4 years. I don't buy his faith that the dollar will remain the reserve currency. 

Short the RTU and SnP and we will make made cash if we can hold out for the Chinese to start dumping treasuries on the secondary market.

I think Communism has something to teach the Caplitalist. All of his preaching about saving money, the Chinese have been actually doing for fifty years. I think they could short Treasury Bonds, destroy the Capitalist countries economies, buy Jackson Hole and tell the US to go fuck themselves. I don't think they have enough to buy Davos yet but, after they work the Germans over with their latest 50 billion Euro trade agreement, Davos will be had at a bargain.

This guy sent chills up my spine in the 1980's and he IS back doing it again!!!!!!!


Tue, 07/24/2012 - 22:56 | 2647869 chump666
chump666's picture

Finance has never been that clean, that is just reality of capitalism.  But, we have two central banks that are now directly buying in and supporting markets en masse, which are the ECB and the Fed.  If I look at the trading pattern of the Dow and S&P for the last month it looks like HFTs which have created the tightest trading range.  You can't go long or substantially short.  Point is, the central banks are backstopping equities in some form or another.  That is unprecedented on this scale. 

The Chinese f*cked it by their madness with stimulus, they have outright inflation eating into their Yuan, hence them now buying up USDs - the private sector, this in turn is capping the Fed/ECB re-inflation equity trade.  Two forces are pushing the risk on/off spreads tighter, something is going to give.  People say we have 3yrs before a total collapse, I am looking at 6mths or less.  War will be the primer as bonds will go bid less and be dumped.  Yes, starting with China dumping USTs.  Very possible.

Tue, 07/24/2012 - 22:29 | 2647825 jez
jez's picture

"As Badgett said (Walter Badgett, the great 19th-century British financial thinker): provide liquidity at a penalty rate to sound collateral."


Transcription error, I think. In case anyone is interested and wants to look into this source, I'm pretty sure he means Walter Bagehot (1826-77).

Tue, 07/24/2012 - 22:45 | 2647845 suz
suz's picture

Stockman is right on...but he misses out on one point....the Fed's have created the greatest Nanny State ever--where we all get to become members of the Teddy Bear Nation.

Get real Stockman! It's not as simple as preserving principle. I haven't hear one economist, yet talk about the level of apathy and denial in this country in a real way. They are all out of touch. They need to see our country catch up to it's future.

Tue, 07/24/2012 - 23:22 | 2647935 FRBNYrCROOKS
FRBNYrCROOKS's picture

His point: The market, since Lehman was sacrificed, is all about the carry trade and spreads between Fed. fund rate and repo /libor rate. Once rates rise; a future inevitability, game over as the market dumps treasuries, rates go the moon and the smart guys sitting on dry powder buy Treasury notes at 17%-35% yields. We will see how high the rate goes. If you are sitting on Bonds paying 1.4% you will miss the boat. I say short equities and keep half in cash. When the "nanny state" is decimated by the loss of confidence in US (debased) dollar; the Treasury Bond market is locked up because Treasury notes pay obcene rates above 10%, go into short term Treasury debt and roll it over every 30 days while the clueless are trying to unload their 30 year paying 3.4%. Get it?

Tue, 07/24/2012 - 22:51 | 2647858 Ted Baker
Ted Baker's picture

Let's stop borrowing and boycot supermarkets to get food daily what else do you need...then the feb will become desperate and promote borrowing and spending for free zero rates

Tue, 07/24/2012 - 22:56 | 2647868 daveeemc2
daveeemc2's picture

"I believe that banking institutions are more dangerous to our liberties than standing armies.  Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."    Thomas Jefferson

Tue, 07/24/2012 - 23:01 | 2647876 Againstthelie
Againstthelie's picture

Two things i don't understand:

1. How can treasuries not crash when interests are skyrocketing?

2. How can the Dollar preserve purchasing power, if the economy collapses? A collapse means collapsing income for the state while spending explodes.

To me it seems illogical to expect a 2008 flight into safety in the Dollar and treasuries, when interests skyrocket. This seems more to me to be the classical setup of hyperinflation: flight from treasuries and the currency of the bancrupt state being behind them.

Is there any example in history, where a state went bancrupt and the FIAT currency gained purchasing power?

Tue, 07/24/2012 - 23:20 | 2647929 Dr. Engali
Dr. Engali's picture

To answer your first question treasuries will crash when interest rates go up,however if you're on the short end of the curve then there is less damage to your principle because you don't have much exposure until maturity. To answer your second question if the economy collapses then there will be a scramble for dollars and that is highly deflationary as there will be a shortage. More debt will be destroyed and that feeds into the deflationary cycle. The real risk is if Ben continues to print and buy up the long end of the curve. Eventually the market will try to assert itself and if Ben keeps fighting then we have the chance of a hyperinflationary environment. Nations and other entities will dump the dollar quicker than snot.

To answer your third question .. Technically speaking the U.S. has defaulted twice in the last 100 years. First in 1933 then in 1971.

Personally I see it playing out along these lines. A big deflationary event followed by a dumping of the dollar which will cause hyperinflation.

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