RSS

David Stockman—Economic Carnage Coming Soon

09 Mar

David Stockman [courtesy Google Images]

David Stockman
[courtesy Google Images]

David Stockman is a former businessman who served as a Republican U.S. Representative from the state of Michigan and as the Director of the Office of Management and Budget under President Ronald Reagan.  He was recently interviewed on two different programs and made the following comments:

 

“The carnage is coming soon . . . . Our two-decade long grand experiment in financial bailouts, massive money printing by central banks everywhere, and non-stop Keynesian debt stimulus is heading towards the wall.

“[I]t’s inconceivable that there will be any lasting deal on Greece.  It’s almost certain that we’re at the threshold which will result in a crackup of the EU and the euro.  That will then catalyze a global crisis of confidence in central banks . . . .  The central banks of the world are on the edge of desperation.”

 

Mr. Stockman’s not the first or only commentator to warn of a loss of confidence in central banks—but his warning still strikes me as strange.  Virtually every nation has confidence in its fiat currency but which nations have much awareness of, let alone confidence in, their central banks?

Stockman’s not warning that we’ll lose confidence in our fiat currency or in our national economy.  He’s warning that we’ll soon lose confidence in central banks.

I’m skeptical.

Did the American people ever have much “confidence” in the Federal Reserve?  I don’t think so.  How could the American people lose confidence in our “central bank” if we never thought about that institution enough to have confidence in it in the first place?

 

“In Europe, Sweden (has now) joined the cavalcade of negative interest rates. . . .  Denmark was already there and is desperately fighting off a massive inflow of capital out of the EU. . . . We saw the calamity a few weeks ago when the Swiss finally had to give up their rather lunatic peg to the euro and the exchange rate soared overnight, creating enormous losses and carnage.  The European Central Bank, is about ready to unload $1.3 trillion of make-believe, printed-out-of-thin-air currency into the European financial and bond markets.

“In Asia, Japan’s madness knows no limit. . . . Beijing sees an implosion everywhere in their massively overextended and debt-ridden markets, particularly real estate.

“Brazil and Turkey are in huge trouble.

“There are unlimited flashpoints—points of breakdown in the global economy and financial system.  It’s only a question of what becomes the catalyst to touch this whole situation off.”

 

There’s the real point:  The world is awash in a multitude of potential “flashpoints” that may each have the capacity to trigger the collapse the global, debt-based monetary system.  Given this multitude, it seems likely that one of more of those “points” will “flash” in the near future.  If so, may see some sort of global decline or collapse.

 

“We’re in the crack-up phase.  Four main factors threaten the world economy and financial markets:

 

1) “Increasing desperation . . .. Central banks from Japan to Sweden have opened their cash spigots.

2) “Increasing market volatility. In the last three months, the CBOE Volatility Index has soared as high as 25.2 and dropped as low as 11.53.

3) “Investment . . . . will be driving a huge deflation of commodity and industrial prices worldwide.”

4) “Demand has run smack up against peak debt. Global debt now totals $200 trillion.”

 

I agree that global demand has probably been slowed by “peak debt”.  In other words, the world is already so deeply indebted that existing debt can’t ever be repaid in full.  Therefore, it’s generally unreasonable for creditors to lend to borrowers who can’t repay their current debts let alone additional debt.

Now is not a good time to lend.  It’s a better time to save.

I don’t understand what Stockman means in “Global debt now totals $200 trillion”. Perhaps he meant to say “Official global debt now totals $200 trillion.”  Perhaps he was misquoted.

But the Congressional Budget Office has declared that the US National Debt (including unfunded liabilities) is over $200 trillion. Including derivatives, some calculate that the total global debt may be as much as $2 quadrillion.  Thus, Stockman’s warning about a “mere” $200 trillion seems misstated.

Still, Mr. Stockman is probably right in warning that global demand has run up against the “wall” of total global debt.  The world is so deeply in debt . . . that most nations can’t borrow any more currency . . . to buy more stuff . . . to create more demand . . . to provide more corporate business . . . to generate more profits . . . to justify hiring more employees. . . . so they can buy more stuff . . . to create more demand, etc..

 

This excessive debt problem isn’t news.  It explains why the Federal Reserve has purchased over $3 trillion in US government bonds and mortgage-backed securities (toxic “assets”) over the past six years.  The Fed purchased US government bonds because almost no one else would.

Q:  Why did most private and foreign creditors stop or restrict lending to the US gov-co?

A:  Because they believed that the US gov-co was already so deeply indebted that it could never repay most of its existing debt and would surely default on most of its new debt.

So, the Fed bought more government debt and paid for it with fiat currency.  The Fed could do this because the Fed has a monopoly on printing fiat dollars and could therefore “spin” Monopoly Money out of thin air to pay for government bonds.  That Monopoly Money was supposed to be lent into the US economy to “stimulate” the economy, and allow us all to borrow more currency (Monopoly Money), so we could buy more stuff . . . to create more demand . . . to make more corporate profits, etc. so our economic hamster wheel could keep spinning faster and faster.

My point is that the “debt wall” that Mr. Stockman warned against is not simply something in our future.  It’s something we’d already encountered five or six years ago when creditors stopped lending freely to the US gov-co.

More, if this metaphorical “wall” exists, it isn’t hard like a brick wall.  It’s soft like a wall of marshmallows.  We “hit” that “wall,” several years ago, but we didn’t have a real crash.  Our first encounter with the “debt wall” didn’t cause a catastrophe, per se.  It was more like landing in a soft, viscous swamp.  We didn’t suffer any broken bones, but we did suffer an economic slow-down as we tried to slog through the “marshmallow swamp”.

Can we continue to slog through the “swamp” of debt marshmallows until we reach more solid ground?  I doubt it, but it’s not impossible.

Mr. Stockman, however, seems convinced that all that global debt is reaching a point where many of us won’t merely be slowed, but stopped.  Once we’re stopped, the hamster-wheel will stop spinning.  What happens then?

Stockman’s not optimistic.

Neither am I.

 
7 Comments

Posted by on March 9, 2015 in Banking, Economic collapse, Economy

 

Tags: ,

7 responses to “David Stockman—Economic Carnage Coming Soon

  1. mrtideman

    March 9, 2015 at 1:03 PM

    Alfred, You need to find out of HOW a note is monetized, or “supposed to be” before calling all of these FRNS fiat “paper money”. Yes, I tried to get an individual audit on a single George Washington “dollar bill” by asking the Gov’t what pallet it was in of how much gold bullion was exchanged by Section 16, Part 15 thereof the Act of 1913 so that that and those notes that the Fed buys for about 6-cents each no matter what the denomination (of from the $1.00 to the one hundred dollar bill) can be trucked to their member banks, but still supposed to be in-house notes by 12USC411 but that do circulate like the U.S. Notes of old to us in the public who take such on a voluntary basis.

     
  2. mrtideman

    March 9, 2015 at 1:27 PM

    WHY do you PREVENT / prohibit the copy & paste!? ” Alfred, You need to find out of HOW a note is monetized or “supposed to be” before calling all these FRNs fiat “paper money”. Yes, I tried to get an individual audit on a single George Washington “dollar bill” by asking the Gov’t what pallet it was in of how much gold bullion was exchanged by Section 16, Part 15 thereof the Act of 1913 so that that and those notes that the Fed buys at about 6-cents each no matter what the denomination (of from the $1.00 to the one hundred dollar bill) can be trucked to their member banks but still supposed to be in-house notes by 12USC411 but that do circulate like the U.S,. Notes of old to us in the public who take such notes of a voluntary basis. ” See: COIN WORLD, of: __________ and; https://realitybloger.wordpress.com/2011/11/21/federal-reserve-notes-are-backed-by-gold/ Date: Mon, 9 Mar 2015 15:56:10 +0000 To: josephshaas@hotmail.com

     
    • Adask

      March 9, 2015 at 4:24 PM

      Copy what? Paste what? I don’t prevent anything. If there is any “prevention” mechanism, it’s built into the WordPress program, but, so far as I know, has nothing to do with me.

       
    • Pesky Nat

      March 9, 2015 at 11:54 PM

      @ WHY do you PREVENT / prohibit the copy & paste!? ”
      WHY do you ASSume he is the CAUSE? WHY didn’t you send a message saying what happened, & then maybe a solution could be arrived at. I have, on ocassion, had a few odd things to occur computer-internet wise too. Why didn’t you PREVENT it? WHY did you ALLOW this to happen? Get the point?

       
  3. Roger

    March 9, 2015 at 3:42 PM

    What’s driven inflation in recent years has been credit creation by the commercial banks, mostly members of the Federal Reserve cartel.

    Most newly printed currency has to be loaned into circulation by these banks to their retail customers, in order for that currency to circulate and put upward pressure on prices. But inflationary increases in loan demand are not something you expect during an economic slowdown like we’re in at the moment.

    This partially explains why the U.S. Dollar Index (DXY) has been on a steady rise of late. It was at or under 80 for the longest while. Then it suddenly jumped to the high-80s last October. Now it’s pushing 100.

    This increasing strength of the dollar (against other major currencies) as measured by the DXY has hurt debtors (like many Americans), who must now repay their loans in more valuable dollars, but it has been a boon to creditors (like the Federal Reserve banking cartel) for the same reason.

    Funnily enough, the same Federal Reserve also controls interest rates: another major control mechanism of dollar strength versus other major currencies.

     
  4. Roger

    March 10, 2015 at 6:00 AM

    Mr. Stockman should get at least the basics of this topic down before publishing opinions that readers might mistakenly trust and thus harm their financial futures. For starters, Mr. Stockman should learn that the Fed is prohibited by law from buying bonds directly from the government. All the Fed’s bond buying is done in the secondary market.

    Even if the Fed was eventually buying 100 percent of the government’s bonds, this would still not mean that “no one else” is a potential buyer. It would only mean the Fed represents all the effective demand at that price level.

    If the Fed withdrew from the Treasury market altogether, U.S. bonds would still trade, though at a lower price and higher interest rate. Hence, the Fed steps in and outbids other buyers as part of its well known toolkit for controlling interest rates – the real function of QE.

    The government does not need, or use, the Fed in order to fund its operations. The Treasury Department’s bond sales already have guaranteed buyers: the so-called “Primary Dealers” which the government can require to buy its bonds. So much for the claimed role of the Fed’s QE in “monetizing” government debt.

    Anyone trying to pass himself off as remotely competent in finance should know such basic facts about the Treasury market. Or maybe Mr. Stockman does know these things and is deliberately failing to mention them due to an undisclosed conflict of interest. Either way, beware.

     
    • Clyde Harkins

      March 29, 2015 at 9:53 PM

      Babylon and its system of moral depravity is rising by creating crisis, after crisis. There is nothing new here except as always, only a few understand what is happening.

       

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s