David Stockman, former Michigan Republican Congressman and budget director for President Ronald Reagan, made a stop on the Fox Business Network (FBN) on Monday and spoke with host Neil Cavuto regarding his new book “The Great Deformation” and the economy.
In the interview, the ex-budget head highlighted the mounting debt issue, the largest bond market bubble in history, the fallacy that budget deficits don’t matter and the paucity of equity because everything is debt on debt on debt (ponzi scheme). Although Cavuto continually interrupted Stockman, he was able to provide the audience with important aspects of information.
“There is no way a deficit doesn’t become a tax increase sometime down the road. We are burying the next generation in debt. The whole system is out of kilter,” explained Stockman. “As we get down the road and finally the day of reckoning comes and we have to begin to manage this debt, which is totally out of control. We’re going to be taxing everybody.”
When asked if the country is approaching that situation, Stockman responded that the United States is because the nation is nearing a time when the Federal Reserve cannot continue to purchase all of the debt. It could be in the next couple of years, according to Stockman.
What may have been the most important comment in recent memory, Stockman definitively stated that the U.S. is in the biggest bond market bubble in history and is presently being held up by fumes. The finance market is in this incident because there are a few individuals who believe the Fed can continue this charade of buying and propping everything up indefinitely.
“The minute they lose confidence that the central bank can print our way into permanent salvation they will start selling bonds and others will sell the bonds and there will be no bid,” said Stockman. “It gets liquidated. This is all debt on debt; nobody owns the bond they borrowed 98 cents to buy.”
Essentially, the whole thing is a “giant ponzi scheme” because it’s “just debt on debt on debt” and nobody has any real equity left in this market. When Cavuto asked why the U.S. can’t declare bankruptcy, Stockman replied that being the largest economy in the world would be pretty difficult to announce such a thing.
Can the U.S. just continue printing money?
“If that were true then I don’t know why we’ve been working so hard all these years to save, to sweat, to build, to produce, to work, if it were so easy that you just have a central bank print enough money for everybody and drop it out of a helicopter and tell people pick it up once a day and party on,” Stockman continued. “You know that isn’t workable. That is crazy economics, but effectively that is what the Fed is doing today.”
Stockman went onto cite the numerous bubbles that have been created and reinflated by the Fed, including by former Chairman Alan Greenspan – a concept that has been espoused by some of the great Austrian theorists over the years. “The market is dangerous,” which is why Stockman, speaking in jest, keeps his money in or under his mattress.
The former Reagan official finished by saying that if the Fed was to close up shop for six weeks then the market would crumble. The reason why is because everyone is addicted to the heroin that the Fed keeps injecting into the markets.
“The minute the Fed stops the whole environment changes, the confidence changes, the psychology changes and the bubble is revealed,” concluded Stockman. “This is the greatest bubble yet.”