Wednesday, August 17, 2011

David Stockman's reluctant and embarrassing admission



I ran into David Stockman at Fox yesterday. Several months ago I bumped into him as well and we got into a conversation about the debt. Stockman was Reagan's budget director until he got fired, probably because he protested too much against the huge deficits that Reagan ran (which created an economic boom). After he left the White House he disappeared for quite a long time, but has since resurfaced as the new "debt Cassandra," warning everyone who will listen that the debt is going to bankrupt the country unless we get it under control, yada, yada, yada.

The last time I met Stockman I asked him what would happen if we didn't get the debt under control? He said interest rates would spike and it would be impossible for us to service our debt. I said that interest rates wouldn't spike, necessarily, so long as the Fed kept them low and even if rates did go up, the U.S. would have no inability to pay the debt service becuase it was simply a matter of the government crediting bank accounts in U.S. dollars, which it does all the time.

He took issue with my assertion that the Fed set the rates.

I asked him about Japan, which has a debt almost three times that of the U.S. yet yields on 10-year Japanese gov't bonds were only 1.0%. (Back in March 10-year U.S. Treasury yields were about 3.6%.) He said that Japan was "different" because it was "internally financed" as opposed to our problem of having external finance. When I countered that the U.S. was also "internally financed" because it's all in dollars, he got annoyed and basically walked out in a huff, shaking his head the whole time as if I was some ignorant fool.

Well, yesterday, Stockman was on Cavuto and he started in with his usual debt rant--unsustainable debt, bankruptcy, etc. But then he said this: "We should abolish the Fed."

Neil Cavuto looked at him and said, "Abolish the Fed? Why?"

He said, "Because the Fed is keeping interest rates artificially low and that is bad."

I couldn't believe my ears. Just a few months earlier this guy was arguing adamantly that the Fed did not control rates and that rates would spike and we wouldn't be able to pay the debt service. Meanwhile, over that short period of time, deficit spending has continued and the U.S. even had its credit rating dowgraded and interest rates had fallen even further. It was obvious that none of the things he had been predicting were coming true.

When he came back to the green room from his segment I said to him, "David, I thought you said in our last discussion tht the Fed didn't control rates and now you just said that it is keeping rates down?"

His face froze for a second and I could see he was trying to collect his thoughts and think of a comeback. Then he just said, "Yeah, but eventually rates are going to spike up. They have to. They can't stay low forever. The Fed will have to raise them to attract capital." (Notice, he says, again, the FED WILL HAVE TO RAISE THEM...)

Unbelievable. These are our policymakers. Clueless, arrogant, people who are so full of themselves and so deep into their club of false beliefs that it is mindboggling. If they weren't so destructive these guys would be truly laughable.



12 comments:

Tom Hickey said...

Dilbert speaks to this today here,

Neil Wilson said...

All I can see is the Catholic Church just prior to the Reformation.

And like the Reformation in England, this economic one will take place when there is a political necessity.

Calgacus said...

Yup, the thing about mainstream "economics" & "thinking" is that it is sooooo stupid. It is a real life Plan 9 from Outer Space.

The only reply to such fools: "Your stupid minds! Stupid, stupid, stupid, stupid!!"

Adam said...

What does "artificially low" mean?

Benedict@Large said...

Stockman strikes me as the sort of guy who could be very smart, if only he'd stop trying so damned hard not to be.

googleheim said...

ADD TO THIS CHINA SAYING ON MONDAY THAT THEY WERE WORRIED ABOUT ALL THAT MONEY "THEY GAVE TO US" WHEN IN FACT WE KNOW THEY NEVER EXCHANGED ONE SINGLE YUAN RENMIBI.

THEY ARE WAGGING OUR TAIL JUST LIKE I SAID 3 YEARS AGO IN THIS BLOG BY HOARDING DOLLARS GIVEN TO THEM TO THEM TO THEM !!! BY THE AMERICAN CONSUMER ...

IT'S NOT THE CATHOLIC CHURCH AS ANALOGY HERE, IT'S THE GERMANS AND THEIR ATHEISTIC REFORMATION. THEY WOKE UP TO FACT ABOUT SOMETHING SIMILAR TO MMT AND THEN THEY REFORMED - THE CATHOLICS ARE HARDLY AN ANALOGY. LOOK AT PROTESTANT NORTHERN GERMANY TODAY - THEY ARE BASCIALLY PROTESTANT TO PROTESTANTISM NOW AND SO ARE ATHEIST.

WE'VE ALREADY PAID THE CHINESE AND NOBODY GAVE US ANY DEBT. WHY WOULD YOU WANT TO RAISE INTEREST RATES AND REWARD THESE HOARDING CARCASSES ?

googleheim said...

the effect is now hereby known as the "deficit terrorist lobotomy"

the object now has properties that are self expressive.

they don't know there left from right therefore let's put Mosler back into 2012 !!!

beowulf said...

"Stockman strikes me as the sort of guy who could be very smart, if only he'd stop trying so damned hard not to be."
He was the Paul Ryan of his day. Elected to Congress very young he became a national figure as a budget wonk (Reagan appointed him OMB director when he was in early 30s).
His personal "Ryan Plan" epic fail was when less, than a year in the WH, he talked out of school with journalist Bill Greider. Stockman complained (while he's budget director!) about Reagan cutting taxes too much and not cutting spending enough. He would have been fired at behest of Reagan loyalists but for the intervention of WH Chief of State James Baker (who talks, rather winningly, like a David Mamet character).

"My friend," he started, "I want you to listen up good. Your (expletive deleted) is in a sling. All of the rest of them want you (expletive deleted)-canned right now. Immediately. This afternoon.

"If it weren't for me," he continued, "you'd be a goner already. But I got you one last chance to save yourself. So you're going to do it precisely and exactly like I tell you. Otherwise, you're finished around here."

Baker continued his verbal thrashing without blinking an eye. "You're going to have lunch with the president. The menu is humble pie. You're going to eat every last (expletive deleted) spoonful of it. You're going to be the most contrite (expletive deleted) this world has ever seen...Let me repeat something, just in case you didn't get the point. When you go through the Oval Office door, I want to see that sorry (expletive deleted) of yours dragging on the carpet."

http://www.chron.com/CDA/archives/archive.mpl/1986_235495/the-triumph-of-politics-trip-to-woodshed-reveals-f.html

Mike Norman said...

Beowulf: LOL!!! Awesome, man!!

beowulf said...

"but for the intervention of WH Chief of State James Baker"

Thanks Mike, obviously Baker was Reagan's WH Chief of STAFF and later became Bush's Secretary of STATE. :o)

Baker was easily the most competent executive in both of those Administrations (he was also Reagan's 2nd term Tsy Sec). Frankly, we'd have all been better off if Obama had asked Baker to come back to Tsy. The only Tsy Secs that Wall Street can't buy are the ones from Texas that Big Oil already own (Connolly, Baker, Bentsen). :o)
During the 1990s, American officials routinely urged their Japanese counterparts to kill their zombie banks before they could do more damage to Japan’s economy. Today, it would be irresponsible if we did not heed our own advice.
http://www.nakedcapitalism.com/2009/03/jim-baker-first-lets-kill-all-zombies.html

Anonymous said...

Stockman has been appearing everywhere. I don't think he's promoting a book so I keep asking myself what does this guy want?

Is he looking for a job in this Administration (good luck!) or the next? Is he getting ready to run for Congress or the Senate?

Anonymous said...

Googleheim: Please buy a new keyboard.. one where the caps key isn't locked down. On behalf of everyone's eyes and brains.. Thank you!