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The PJ Tatler

by
Rick Moran

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March 31, 2013 - 10:48 am

I’ve read a lot of doom-and-gloom analysis from financial experts over the last couple of years, but this one by former Reagan OMB Director David Stockman takes first prize for scaring the holy living beejeeses out of me.

A few highlights:

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five American

[...]

As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another — smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (“clean” energy, biotechnology) and, above all, bailing out Wall Street — they have now succumbed to overload, overreach and outside capture by powerful interests. The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating “demand,” even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.

[...]

Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They — China and Japan above all — accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes.

This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.

[...]

THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown “seems likely to be contained.” Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.

These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

More on the next page.
Politicians in the industrialized West have become quite adept at kicking the can down the road to avoid facing what Stockman so presciently describes. The last three years in Europe have been spent avoiding calamity by hoping that eventually something will turn up to save them. Patching together temporary fixes doesn’t solve anything.

In America, we are doing an excellent job of pretending as well — except our rich and varied fantasy life involves arguments over cutting miniscule amounts from a budget that has been running annual deficits of a trillion dollars.

Wall Street has us by the throat and Washington has us by a body part further south. Stockman’s advice of what to do is both frightening and depressing:

The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.

Rick Moran is PJ Media's Chicago editor and Blog editor at The American Thinker. He is also host of the"RINO Hour of Power" on Blog Talk Radio. His own blog is Right Wing Nut House.

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Top Rated Comments   
So after 30 years David Stockman is still bitter that the Reagan Administration didn't follow all of his advice and he wants to blame today's deficits on Reagan and Bush. Never mind that we have had balanced budgets since Reagan and the deficit was a mere $160 billion as recently as 2007 under Bush. Strangely, he never mentions the fact that Barack Obama has run a trillion dollar deficit every year he has been in office.
PJMedia has long been one of my favorite websites, but they have been publishing more and more bizarre articles lately. Is this what we can expect with Roger Simon no longer in charge?
1 year ago
1 year ago Link To Comment
Trade goods for the coming collapse: Booze and cigarettes.

Guard them with guns and ammo. Lots of guns and ammo.

The good news is that Obama's retirement will be worthless..... LOL
1 year ago
1 year ago Link To Comment
Wen Stockman's end arrives, there'll be no more food stamps, disability insurance, section 8 housing, Obama phones, AFDC or the myriad of other "support" programs. Perhaps this is what DHS is preparing for with their ammo purchases, drones and armored personnel carriers. Maybe it's not the law abiding gun owners, but their clientele in the 'hood that they are afraid off. Maybe we're just the straw men.
1 year ago
1 year ago Link To Comment
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All Comments   (86)
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Hmmm.... Maybe I should stay in Israel. At least if our economy wasn't so tied to the US one....
1 year ago
1 year ago Link To Comment
Stockman was right about Reagan. When they first started talking about supply-side economics (I was in college at the time), I thought it made perfect sense. Lower the tax rates and the economy will grow and will eventually result in more tax revenues to the government. However, the key to all of this is that there would be a time lag between the time you lower taxes and when the economic growth would make up the difference. During this time delay it was absolutely essential that the government spending be tightly controlled until the economic growth kicks in. I guessed this time lag would be about 4 years. This was Stockman's point, and he described it in detail in his earlier book "The Triumph of Politics".

The problem is that the Reagan administration did not heed this advice. They ramped up government spending immediately. Reagan wanted his defense spending increases and was willing to log-roll with the Democrats in order to them them. This is the reason why we had the $100 billion plus annual deficits starting around 1984 or so. So, Stockman resigned.

So many people are clueless about this (even people here in pjmedia).

We had a budget surplus during Clinton's 2nd term because we had a bubble economy that was generated by artificially low interest rates by Greenspan. Greenspan convinced the BLM into redefining inflation 3 times during the 90's. These redefinitions were 1) indexing over multiple years, 2) substitution effects, and 3) hedonic factors. All of these are fraudulent. The reason why he did this was simply to make his job easier. Jom Rogers was correct in describing Greenspan as an incompetent boop.

Its easy to balance the federal budget during an artificially inflated bubble economy.

Bush II, of course, had his delusional war in Iraq. Afghanistan was a legitimate conflict, Iraq was not. Iraq never had anything to do with 9/11 and the purported weapons of mass destruction were never found because they never existed. The federal deficit ballooned during Bush II's first term, but moderated during his second term, again due to an artificial bubble economy. This time it was driven by the housing bubble.

Stockman is right. Crony capitalism is criminal parasitism, plain and simple. Keynesian economic theory is simply the rationalization of such parasitism. It is pure criminality as well. There will be no sustainable recovery until these things are eliminated from our society.
1 year ago
1 year ago Link To Comment
No, this is false. See Reagan by Dinesh D'Souza.

The reason we had a balanced budget is that Reagan's deficit ended the cold war, thus freeing up part of the budget. As usual, the dream ends when we get attacked; deficits are normal in war. This was due to Clinton's bunglisng and Republican's carping; may I remind you that the Mogad. bug-out was Bin Ladin's reason he sthoguht he could win?

Reagan tax cuts for the rich paid for themselves. It was his tax cuts for the poor and middle class that cost. Strange how the Democrats don't want to biring back the Clinton rate they love so much for the poor and middle class.
1 year ago
1 year ago Link To Comment
No need to Worry because I'm sure Paul Krugman will come out with an article discounting EVERY SINGLE THING DAVID SAID.
1 year ago
1 year ago Link To Comment
Except for the blaming of Reagan and Bush of course.Those two things are universally true I guess because everyone blames Bush and Ronnie for all things Bad.
1 year ago
1 year ago Link To Comment
How very -- RONULAN of you Rick.
1 year ago
1 year ago Link To Comment
You can argue how we got here but this is where we're at. If you listen to Kyle Bass it seems the fed is playing the only card it thinks it has....given that the administration refuses to dramatically cut spending and raise some taxes, which means we don't have long before the shtf whether under cover of war, economic collapse or possibly some other calamity that we are blissfully unaware of...I choose the latter given the cover attributed to the 'global warming' crisis...a series of orchestrated environmental calamities maybe? It is not as far fetched as you might think.
1 year ago
1 year ago Link To Comment
Stockman's already taking so much flak from all the usual suspects, about a book that isn't even published yet, that you know there's a good chance he's on target. Judging from his WSJ article, he also writes much better than most of his critics -- that too is instructive. The claim that nothing can be done reads like a rhetorical flourish not to be taken literally. Just enough to annoy the academy.

So much heat and nobody's read Stockman's book, yet many swallow the venom from his critics. Hard to think of a better example of why the good guys are losing.
1 year ago
1 year ago Link To Comment
We know he acted like an idiot under Reagan; why should we believe him now?
1 year ago
1 year ago Link To Comment
Rick:

Your excerpts from Stockman's article imply that he's putting the blame on Reagan. I don't know whether Stockman is just being self-serving or if there's actual merit to his criticisms of his former boss. I can go read the full report myself, but would you, Rick Moran, give us a clue as to whether his criticism is equally as strong for the current President? He -- Stockman -- does enumerate the bad policies of the current administration, but he doesn't attach those policies to Obama -- odd. That's a problem with cherry-picking excerpts.

I do see the Stockman is highly critical of Keynesianism, as I think he should be. However, while Keynesianism was never a great economic model, it "worked" in the past, after a fashion. To me, one problem is that the current Keynesianism is being practiced by incompetents in an economy that screams for a more robust economic model.
1 year ago
1 year ago Link To Comment
Reagan, like other conservatives, had no choice but to make a Devil's
Bargain with the Progressives; He got control of foreign policy, they
got control of domestic policy. It was the lesser of two evils, but
still not a good thing.
1 year ago
1 year ago Link To Comment
What specific 'domestic' policies of the Regan democrat congress are you referring to?
1 year ago
1 year ago Link To Comment
Refusal to cut spending before Garhm-Rudman.

Reagan backed Stockman even when Stockman publically attacked him. But he was more interested in the tax cuts, curing inflation, and destorying the USSR than in cutting spending, where he had to fight both Republicans and Democrats (Dick Chaney being a natoable exception).
1 year ago
1 year ago Link To Comment
And so when the ecomonic collapse of American occurs, the same politicians that caused it, will then take control of the country via the new National Police force being built at DHS. That should turn out well, huh.
1 year ago
1 year ago Link To Comment
Unfortunately for them we aim to misbehave.
1 year ago
1 year ago Link To Comment
Stockman has a clue. Anyone who was willing to get out of their own little echo chamberm and accept the facts for what they are, knew this over a decade ago.

Want a real scare? Start with these guys:

"The Rise And Fall Of Civilizations"
December 2001
By Joseph M. Miller, Daan Joubert and Marion Butler

Their paper, "12,000 Years of Elliot Waves and What This Means for the Twentieth Century" will also drop your heart into your socks.

Google: "a reader resources on systemic collapse" for more fun and games...

You can't stop it. The only thing you can do is to mitigate the damage, and that, only somewhat.

In short, the survivalists and preppers aren't as stupid or crazy as some people seem to think.

1 year ago
1 year ago Link To Comment
I read your referenced article. While I agree with their assessment generally, the fact that they have made "Global Warming" part of their list of Dark Age contributors, makes me less likely to trust their other analyses.

May I ask if you agree with their assessment in whole or in part?

Do you agree with this statement: "...western culture is in flux; Until quite recently, it was characterized by a more strict, conservative outlook on life with a strong work ethic and relatively strict moral values, that are now often seen as narrow minded and old fashioned. The new dogma since the 1960's is one where nearly anything goes as long as it gives pleasure or brings riches."
And if you do agree, how do you mesh this with your dismissal of moral values as a dimension of conservatism?
1 year ago
1 year ago Link To Comment
As my immigrant grandmother used to say - (sigh) Vell, dat's de vay it is . . . vot can you do . . . (sigh).
1 year ago
1 year ago Link To Comment
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