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Wow. Talk about
calling it like it is.
The Associated Press is out
with a report (via Business
Insider), "David Stockman: You'd Be A Fool To Hold
Anything But Cash Now," featuring a no-holds-barred interview with an
individual (and former White House budget director under Ronald Reagan) who
is no stranger to the pages of Financial Armageddon.
Here is a brief
excerpt:
Q: Why are you
so down on the U.S. economy?
A: It's become
super-saturated with debt.
Typically the
private and public sectors would borrow $1.50 or $1.60 each year for every $1
of GDP growth. That was the golden constant. It had been at that ratio for
100 years save for some minor squiggles during the bottom of the Depression.
By the time we got to the mid-'90s, we were borrowing $3 for every $1 of GDP
growth. And by the time we got to the peak in 2006 or 2007, we were actually
taking on $6 of new debt to grind out $1 of new GDP.
People were
taking $25,000, $50,000 out of their home for the fourth refinancing. That's
what was keeping the economy going, creating jobs in restaurants, creating
jobs in retail, creating jobs as gardeners, creating jobs as Pilates instructors that were not supportable with organic
earnings and income.
It wasn't
sustainable. It wasn't real consumption or real income. It was bubble
economics.
So even the 1.6
percent (annual GDP growth in the past decade) is overstating what's really
going on in our economy.
Q: How fast can
the U.S. economy grow?
A: People would
say the standard is 3, 3.5 percent. I don't even know if we could grow at 1
or 2 percent. When you have to stop borrowing at these tremendous rates, the
rate of GDP expansion stops as well.
Q: But the
unemployment rate is falling and companies in the Standard & Poor's 500
are making more money than ever.
A: That's very
short-term. Look at the data that really counts. The 131.7 million (jobs in
November) was first achieved in February 2000. That number has gone nowhere
for 12 years.
Another measure
is the rate of investment in new plant and equipment. There is no sustained
net investment in our economy. The rate of growth since 2000 (in what the
Commerce Department calls non-residential fixed investment) has been 0.8
percent — hardly measurable.
(Non-residential
fixed investment is the money put into office buildings, factories, software
and other equipment.)
We're stalled,
stuck.
Q: What will
10-year Treasurys yield in a year or five years?
A: I have no
guess, but I do know where it is now (a yield of about 2 percent) is totally
artificial. It's the result of massive purchases by not only the Fed but all
of the other central banks of the world.
Q: What's wrong
with that?
A: It doesn't
come out of savings. It's made up money. It's printing press money. When the
Fed buys $5 billion worth of bonds this morning, which it's doing
periodically, it simply deposits $5 billion in the bank accounts of the eight
dealers they buy the bonds from.
Q: And what are
the consequences of that?
A: The
consequences are horrendous. If you could make the world rich by having all
the central banks print unlimited money, then we have been making a mistake
for the last several thousand years of human history.
Q: How does it
end?
A: At some
point confidence is lost, and people don't want to own the (Treasury) paper.
I mean why in the world, when the inflation rate has been 2.5 percent for the
last 15 years, would you want to own a five-year note today at 80 basis
points (0.8 percent)?
If the central
banks ever stop buying, or actually begin to reduce their totally bloated,
abnormal, freakishly large balance sheets, all of these speculators are going
to sell their bonds in a heartbeat.
That's what
happened in Greece.
Here's the
heart of the matter. The Fed is a patsy. It is a pathetic dependent of the
big Wall Street banks, traders and hedge funds. Everything (it does) is
designed to keep this rickety structure from unwinding. If you had a (former
Fed Chairman) Paul Volcker running the Fed today 7/8— utterly fearless
and independent and willing to scare the hell out of the market any day of
the week — you wouldn't have half, you wouldn't have 95 percent, of the
speculative positions today.
Q: You sound as
if we're facing a financial crisis like the one that followed the collapse of
Lehman Brothers in 2008.
A: Oh, far
worse than Lehman. When the real margin call in the great beyond arrives, the
carnage will be unimaginable.
I urge you to read the rest
of the article -- it might save anyone who is betting on
Washington and Wall Street's version of reality a great deal of pain.
Michael J. Panzner
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