Stockman Celebrates The End Of The Goldman Sachs Regency At The White House

Authored by David Stockman via Contra Corner blog,

The financial commentariat and the robo-machines are all in a tizzy this morning because Gary Cohn up and quit. But we say good riddance: The man gave Trump bad advice on nearly every single issue---trade, taxes, fiscal policy and the Fed.

We didn't make any bones about that viewpoint during our appearance on Fox Business this AM. When Maria Bartiromo asked us about Cohn's departure, our reply was: Hallelujah, the Goldman Sachs Regency in the White House is finally over!

The fact is, we do have a trade crisis, but Gary Cohn and the Wall Street pseudo-free traders don't care and never have. That's because they fiercely support a perverted, self-serving monetary regime that systematically and massively inflates financial assets, even as it strip mines and deflates the main street economy.

As we have been pointing out in this series, there is a perverse symbiosis between the Fed and the Dirty Float central banks of the 10 major countries (China, Vietnam, Mexico, Japan, etc), which account for 90% of the nation's $810 billion trade deficit (2017). Together they have ripped the guts out of the US industrial economy---effectively sending jobs and production abroad and cash flow and liquidated capital to Wall Street.

For its part, the Fed has monkey-hammered US competitiveness. That's the result of its insensible 2.00% inflation policy, which has fatally inflated nominal dollar wages in a world market drowning in cheap labor priced in artificially under-valued currencies.

At the same time, its massive interest rate repression and price-keeping operations in the stock market have turned the C-suites of corporate America into financial engineering joints. So doing, they have slashed real net business investment by nearly 3o% since the turn of the century, by 20% from the 2007 pre-crisis peak and, actually, to a level in 2016 that barely exceeded real net investment two decades earlier in 1997.

Meanwhile, the C-suites shuttled upwards of $15 trillion of cash flow and debt capacity during the last decade alone into stock buybacks, vanity M&A deals and excess dividends and recaps. As we said in today's Fox interview, America's business leaders will not stop strip-mining their companies in order to juice Wall Street and goose their own stock options until they are taken to the woodshed by a stern task-master at the Fed.

By that we mean a central bank that is willing to get out of the financial asset price propping and pegging business, and to thereby permit the kind of stock market collapse that would finally expose the folly of  corporate America's endless financial engineering. Indeed, at this point nothing else will stop them except being run out of their jobs for massive dissipation of corporate resources and piling their balance sheets high with unproductive debt.

Yet until there is a clean sweep at the Fed and a purging of today's crop of financial engineers and speculators from the C-suites, there is no possible way to reverse the nation's faltering trade accounts. Doing so would require a major revival of investment in facilities, equipment, technology, people and business innovation that simply isn't in the cards in today's casino.

Yesterday we mentioned that the US has incurred a massive and widening trade deficit for 43 years running, and that the cumulative shortfall totals $15 trillion. But much of that reflects long-ago dollars that have since been inflated away by the Fed's relentless effort to stimulate more inflation.

Accordingly, if that 43-year string of trade deficits is re-priced in 2016 dollars of purchasing power, the horror shows is just all the more stunning. To wit, the US economy has incurred nearly $19 trillion of cumulative trade deficits since 1975 in today's purchasing power.

Is there any wonder that US manufacturing output is still 2.5% below its pre-crisis level of late 2007, and that total industrial production including energy, mining and utilities has barely returned to the flat line?

In this context, one of the chief culprits responsible for those dismal results is the trillions of cheap debt-fueled M&A deals that occur annually, and which cause massive layoffs, facility closures and asset reductions in the name of short-run "synergies".

Of course, all of this booming M&A is supposed to represent the noble work of productivity enhancement and the efficiencies fostered by the so-called market for "corporate control". And it would in a world of honest money and free market financial discipline.

But just the opposite is true under the Fed's destructive regime of financial asset inflation. Overwhelmingly, M&A has become a vanity project of empire-building boards and CEOs, who then slash investments and necessary operating costs in order to deliver paint-by-the numbers "synergies" and to service their bloated debts. In effect, they shrink the GDP, not expand it.

Image result for images of us mergers and acquisition levels since 2000


At length, of course, these so-called synergies get lost in the fog of time and new deals, even as they eventually morph into reduced capacity for long-term growth, employment, competitiveness and profits. And when M&A deals eventually fail, the mountains of goodwill created by these over-priced transactions get written off, while plants, equipment and people get "restructured" into what Wall Street is pleased to call "one-time costs" that are to be added-back to ex-items "earnings".

Likewise, the fetish of share-buybacks is not reflective of the free market at work, either, even as Wall Street risibly proclaims that companies are "returning capital to shareholders" because it is the "highest and best" use of available cash.

No it's not!

In a technologically dynamic world where continuous heavy investment is a prime facie condition for sustainable growth, the cult of stock buybacks would better be described as the grim reaper of corporate finance. In fact, it is part and parcel of the ultra-speculative climate on Wall Street and in the corporate C-suites alike that has been fostered by the Bubble Finance policies of central bankers.

It is now almost universally the case that scalping short-term profits and virtually overnight trading gains is what is driving the casino. So how in the world did Trump get convinced that borrowing $1.5 trillion to slash the corporate tax rate to 21% would "stimulate" anything except an orgy of stock buybacks and financial engineering?

Indeed, if any exclamation mark was needed on the departure of Goldman's current plenipotentiary in the White House, this morning's announcement that February brought an all-time record of $153 billion of stock buyback announcements was surely it.

At the current annualized run rates, stock buybacks at $800 billion plus upwards of $2 trillion of domestic M&A deals and hundreds of billions more of LBOs, leveraged recaps and special dividends will pump $3.5 trillion of cash back into the canyons of Wall Street this year.

Did Gary Cohn explain this to the Donald?

Nah, it was his job to make sure nothing got in the way.

At the same time that corporate America is being strip-minded by Wall Street and the C-suites, US workers also have one foot on the banana peel of inadequate corporate investment  in productivity enhancing tools, technology and training; and one-arm tied behind their backs owing to the drastic inflation of nominal wages.

But the latter has done nothing more than help some keep up in part or whole with the Fed's 2.00% inflation, while relegating many others to outright jobs losses---owing to them being off-shored to the China Price for goods and the India Price for services.

Thus, since the year 2000, nominal wages of US production and nonsupervisory workers (blue line) are up by nearly 60%, which has not helped them one bit because consumer price inflation (green line) has been nearly as high.

Accordingly, real weekly wages of prime age male workers (orange line) have actually flat-lined for the past 17 years.

In the interim, of course, US goods and services production has been massively off-shored. And this trend has been acutely compounded by the systematic under-valuation of currencies by the 10 great trade offenders described yesterday.

To repeat, the US does $4 trillion of combined export and import business with the rest of the world each year. About $2 trillion of that is spread among approximately 150 countries where trade is evenly balanced as between about $1 trillion of imports and exports each.

For the most part, the counties involved such as Canada, the UK, the Scandinavian nations, Brazil etc. have not attempted to trash their own currencies any faster than the Fed has inflated its own dollar liabilities. That means they defended themselves from the Fed's rampant expansion of US dollar liabilities, but did not take advantage of it to justify outright exchange rate suppression and mercantilist export promotion.

By contrast, the other $2 trillion of trade is accounted for by just 10 countries, of which China, Vietnam and Mexico account for over half. Yet among the Dirty Float Ten, US exports in 2017 amounted to only $625 billion, while imports from these countries were more than double that figure at $1.352 trillion.

Stated differently, US exports to the Dirty Float 10 amounted to just 46% of imports from them. And that absurd imbalance is not remotely due to faltering capitalist enterprise on main street or bad trade deals made in Washington.

To the contrary, the real US trade problem is a monetary problem that can only be cured by regime change in the Eccles Building.

While we have little hope that this reality will ever penetrate the orange comb-over, there is still a double dose of "good news" (of sorts) in today's contretemps.

To wit, Gary Cohn didn't get the Fed Chairman's job, which would have made all of this far worse. And Goldman Sachs has finally been purged from the Oval Office.

There's that---and it's at least something.


NumbersUsa NoDebt Thu, 03/08/2018 - 00:10 Permalink




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In reply to by NoDebt

Yen Cross Wed, 03/07/2018 - 23:07 Permalink

  I watched one of the pretty ones @ Fox Business interview an individual earlier this evening, re; Gary Cohn's departure.

 The individual had the audacity to suggest that Cohn was already planning to leave, and it was no coincidence.

 This is how completely out of touch that so called " analysts" are with reality!

  They actually think people believe their lies? I guess the main prerequisite for being on a news show, is how deeply you can patronize the viewers?

izzee Wed, 03/07/2018 - 23:12 Permalink

Gary Cohn, banking the $280mil Tax Free, following in the footsteps of Hank Paulson...."you mean if I 'give up" my private sector job to 'work in gobamnt' then all my gains in the pvt sector will be TAX FREE....SOLD to the American.

So, now Gary is approached by Amazon TV and NetFlix who are in a bidding war over the Re-Boot of the Sopranos.

Due to the early death of Mr Gandolfini, and after a nationwide On-line Poll, the BEST Fit for the New Tony came out to be....Gary Cohn

Deal:  $50mil for a 2year deal, with a Double for the next 2.

"I can see the resemblance" Gary was heard to say.  "Plus I get to KILL people and not get charged.   Way Cool.  And there's THE Casting COUCH, sweeeeeet deal"…




solomon_ru Wed, 03/07/2018 - 23:15 Permalink

All  their money is parked at Cayman Islands, Jersey trusts and other SPVs as well as various foundations/charities anw. Why would they care about anything? 


Oh, the only taxes they care about are that support their Tax exemptions/subsidies/government contracts and other re-distribution benefits to Corporations they serve where  ultimately the funds again(!) end up in their these offshore entities

Snaffew Wed, 03/07/2018 - 23:17 Permalink

so Cohn leaves and stocks go on a tear.  The FANG stocks are shredding it and they are doing their best impression of hanging on to a Falcon Heavy launch (a successful one).  The games will go on no matter who is in the White House...a Dem, a Republican, or even a fucking Russian.  As Bill Murray would say a la 1979---It just doesn't matter!  It just doesn't matter!

agNau Wed, 03/07/2018 - 23:52 Permalink

These have been kept bitches.......forever.
The banks pull the levers....provide the fiat for war.....enslave the citizens.

"But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government."
These have been kept bitches.......forever.
The banks pull the levers....provide the fiat for war.....enslave the citizens.


JibjeResearch Thu, 03/08/2018 - 00:03 Permalink

If there is one thing poor people do best is complaining and blowing their lungs out...

If you want to blame, take a look at the shithead in the mirror...


Harry Lightning Thu, 03/08/2018 - 00:24 Permalink

Stockman is right about how corporate America has turned into a financial engineering enterprise instead of building industry and prosperity for the American economy. Any country whose top companies are more active in financial engineering uses for their capital as opposed to building new ways to expand their business is a country whose economy is doomed for mediocrity if not failure.

But where Stockman is off base is to blame the Fed for the trade imbalances. Certainly the Fed is to blame for a host of problems in the country and world today, but the trade deficit is not one of those items.

What causes the US trade deficit in large part are countries who deliberately print excessive amounts of their currency to exchange with their domestic merchants for the ever-increasing flow of dollars from the US that represent payment for goods and services purchased in those countries. The result is that their products and services remain relatively cheaper to American buyers than if American companies offered the same products and services. The cost to these countries is an inflation rate significantly higher than in developed countries, which hurts their own consumers and reduces to some degree the real profits they have earned from the export exercise. But in the net result,m the export countries still are better off with the higher inflation than if they were not involved in the export business, which is why they continue to crank out higher amounts of their own currency and accept higher domestic inflation. 

The Federal Reserve has no say in that money creative operation inside exporting countries, and hence is not to blame for those actions. In short and in the parlance of Washington, the Fed is not to blame for this "currency manipulation" on the part of the exporting nations, the "Dirty Float" nations as Stockman rightfully calls them.

The blame is to be lain correctly at the door of US trade policy, which for years has done nothing to offset this currency manipulation that creates an unfair playing field for US companies to compete for US business. In a fair trade world free of government intervention, the rising purchases by Americans of the products and services in the exporting countries would push up the value of their currencies, as the merchants in those countries would need to sell the dollars they are receiving to buy their own currencies for use in paying their workers and spending for domestic costs of running their businesses. Because the suppliers in every country want to be paid in their own currencies, and the workers need domestic currency to buy food and pay rent with.

In a fair trade world, the central banks of these export countries would increase their money supplies to facilitate the need for domestic liquidity that needs to be exchanged for incoming dollars, but that increase in domestic money supply would not include a provision for the merchant's profits to be exchanged, only their costs of doing business. Hence, inflation would remain stable and the value of their domestic currency would rise. In so doing, these central banks of the exporting countries would create systemic increases in national wealth that are not limited to just the owners of the exporting companies. And most importantly, the growth in their export business would slow as the value of their currency rose, as the increased cost to buy their currency would make their products more expensive to foreign buyers like those in the US.

Thus in a fair trade world, exporting countries would build wealth over time, developing their internal demand for their products and services while at the same time maintaining a strong exporting presence that would provide them with long term gains. But in reality the world is not fair with respect to trade, countries want huge profits as fast as possible even if it means not building lasting national wealth. The result is what you now see in Asia, economies with a relatively small class of very wealthy business owners, a population that is seen an increase in its standard of living albeit at a smaller pace of growth then the growth of their overall economy, and inflation rates that serve to diminish real profitability. This is viewed favorably by the rulers of those lands in large part because they have vested interests in seeing their national wealth grow quickly. The politicians in these countries benefit as their populations experience better living conditions, albeit at a rate far below what could be experienced if the export policy was more long sighted. The politicians that support these short-sighted currency manipulation schemes also may have a financial interest in seeing the export wheel spinning as fast as possible, which is another reason they forsake long term wealth for short term outsized gain. The playing field remains tilted to their political and perhaps their financial pockets, which is why they are in no rush to move from a free trade to a fair trade world.

So what's the consuming country to do in order to stop the drain of its money and its manufacturing jobs beyond that which would be rightfully expected in a fair trade world ? This is a question that has been considered since the dawn of the industrial age, maybe even as far back as Marco Polo and the beginning of the Explorer Age which ushered in long distance trade between nations. There are basically only two solutions for the consuming country to implement in order to prevent loss of national wealth and its nation's manufacturing employment. One is to engage in a similar scheme of currency manipulation, which is termed a currency war. As the exporting countries with whom the consuming country prints more of its currency to maintain its pricing advantage for goods and services, so too would the central bank of the consuming nation produce greater amounts of its currency so as to reduce the buying power of its currency and make the exporters prices seem more expensive. At the margins, fighting fire with fire only seems ot give everyone birnt fingers, as the net result of these currency wars usually is high rates of inflation that kill domestic economies. So while the trade deficit of the consuming country is reduced by a currency war, the reduction comes because the people in the consuming country have diminished buying power to consume, resulting in a recession or even a depression that reduces overall demand. So even though the trade deficit comes down, the cost is the destruction of the entire economy instead of just the manufacturing industry. This is why currency wars rarely work and are implemented by the same kind of foolishness that believes wage and price controls can stop inflation.

The second solution for the consuming country to implement is the one that has worked throughout the ages, and was the preferred mechanism for countries to employ before the concept of fixed exchange rates across the globe grew popular after the 1930's depressions. This of course is the tariff. If you want to reverse the schemes of exporting countries to keep their products artificially cheaper than they would be if the governments of those countries did not manipulate their currency values, you arbitrarily raise the cost of their products and services to the consumers of consuming countries by adding a tax to the exported goods and services that make them more expensive to buy in the consuming economies. That is what a tariff does, it taxes the exported products and services coming into a country to increase their price and thus allow domestic producers in those consuming countries the opportunity to compete in price against the exported goods coming into their economy. It is very effective in protecting a nation's wealth and manufacturing base, but it does put up the price of consumption by the population since the availability of the cheap products or services from the exporting countries no longer are available. 

In the last fifty years, populations in consuming countries shunned tariffs, favoring instead the less expensive products and services from the exporting nations. At first it seemed like a great deal. Japanese made cars that worked better than American cars were sold in the States at prices lower than any comparable US made cars. The same for other necessities like appliances and electronics. What was not to like. In the 1990's, the products started coming from China instead of Japan, which crushed the Japanese economy ever since, and in recent years India has joined the fray with electronic services, and other smaller Asian countries like South Korea and Vietnam have become huge sellers of products into the US market. Try to find a television or refrigerator or washing machine not made by a Korean company today...that's how huge the exports from Asia have become in the US. 

As time passed and trade deficits kept growing for the consuming countries, the real costs of this foreign trade became apparent. It was not the free lunch that it seemed from the cheap prices. Costs of unemployment benefits shot up, reduction in good paying manufacturing jobs reduced the flow of income taxes that could have been collected, money had to be set aside to train workers who were put out of work by the exports coming into the US that used to be made by these American workers. These costs were huge, its interesting to find that Stockman's calculation of a 19 trillion dollar cost of free trade is almost identical to the total US debt of about that amount that has been accumulated since the late-1970s when this free trade nonsense began in earnest.

Bottom line is that the US needs to employ a tariff on products and services from the countries with the largest trade imbalances. Its the only way to get those countries to stop the excessive printing of money that allows them to maintain trade surpluses with the US, surpluses achieved only through unfair government monetary practices in those countries. If exporting countries pursue policies that harm the US economy to a degree greater than fair market economics would allow, then the US government has an obligation to its people to make level the economic playing field. This will not eliminate the exports from exporting countries into the US. But it will reduce the part of their surpluses gained by the implementation of unfair government policies designed to harm the US economy. 

What is important to remember is that the trade situation is not the fault of the Federal Reserve, but the fault of a succession of US Presidents who refused to defend the US workers, opting instead to pay back the wealthy industrialists who funded their political campaigns. If you blame the Federal Reserve, the real culprit for the problem is let off the hook. As I wrote above, all the Fed can do is start a currency war which will only worsen the problem of trade. Tariffs have to come from the Executive to the degree allowable, and in the bigger picture, from Congress, which is Constitutionally-mandated to approve the lion's share of all tariffs implemented by the US. By the US President taking the lead on implementing the tariffs that he is allowed to erect, perhaps that will lead to some improvement in the US trade imbalances that will convince Congress to take even stronger action. And if the Presidential actions start to improve the trade situation, perhaps then American voters will select candidates for Congressional office who vow to enact the needed tariffs that would create the kind of level playing field that is fair if not free. 

As a footnote, you will hear the excuse in defense of free trade that nations who trade with one another do not fight one another. This is nonsense. The only war the US ever was involved with where tariffs played a significant role was the US Civil War. American businesses have been at war for thirty years with the governments of exporting countries, who have done more damage to the interests of the people of the US than any shooting war ever could have produced. American trade with Japan and Germany would not have stopped the leaders of those countries to renounce their goals of regional if not world domination. Trading with China has resulted in a huge build-up in the Chinese military, done with the money they earned by trading with the US. Wars are the result of many factors, and tariffs are a small item in that list. Trade imbalances caused by unfair government policies are more likely to harm relations between countries than the tariffs that seek to reduce the imbalances. 

Posa Harry Lightning Thu, 03/08/2018 - 01:24 Permalink

Excellent disquisition Harry. The US doesn't need a Trade War... it needs a phased in Protective Tariff that also encourages competition with low to zero tariffs on trade partners who pay at or above prevailing US wages; and encourages direct investment in factories here in the US. Combined with a judicious Industrial Policy, a Development Bank and a real Bills monetary- credit policy run by the US Treasury the US can thrive as an Industrial- Hi tech economy. Financial engineering has to be euthanized with tax and regulation, and the US weaned off of wasteful MIC spending as well.

In reply to by Harry Lightning

Atlas Crapped Harry Lightning Thu, 03/08/2018 - 08:28 Permalink

Lightning is correct. He points out the structural imbalance of the dollar as global unit of account and reserve asset. Trumps 1980's dogma haunts him excessively but he will be corrected in practice. The pendulum is swinging away from dollar centrism to the multi-polar SDR model either way. Make America Great (Self Sufficient) Again is not just a political slogan for the little people, it's a recipe for survival in a changing world the US MIC cannot overcome (they can blow it up, but they can't overcome change).

The families have shaped this new era of Nationalism as a way to engender acceptance of a new global unit of account, along the decommissioning of the dollar from "ultimate world reserve currency" to "national currency that the world still has to use, but absolutely hates to".…

In reply to by Harry Lightning

Madolf Sanders… Harry Lightning Thu, 03/08/2018 - 13:35 Permalink

Trade deficits are good. The larger the better.  We: Tons of cheap stuff. Them: inundated with our dollars. 

For example, 1) i have about 20grand worth of cheap crap from China in my little home (probably woulda cost about 100k in soley-american produced factories). I/You/We live like kings.

and 2) China now (by necessity as being subservient to the american dollar&debts) has more english speakers than in america. That's 300million americans whom didn't need to learn chinese, x ~1000hrs to learn x ~15/hr = ~4.5trillion in time saved the average american not to have to learn to speak chinese.

The tangible and indirect benefits with flooding the world with our dollar, our debt, and our trade-imbalance are huge.

In reply to by Harry Lightning

Grandad Grumps Thu, 03/08/2018 - 01:53 Permalink

Just end the Fed and have Congress and the Treasury do their jobs. Regime change at the Fed is still the Fed in control of this country. I do not think it is possible to find an honest banker who is not driven by greed and will do first and foremost what is best for the American people.

youshallnotkill Thu, 03/08/2018 - 04:40 Permalink

And the good news just keep on coming.

Netanyahu: I have less disagreements with President Trump than I had with President Obama. Actually I still haven't encountered any disagreement with Trump