Preston Clive
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Financial Apocalypse WHEN? Ask Stockman..

Having watched the Stockman interview, millions party like there's No Tomorrow. (IMAGE: Opera Today)

By Preston Clive

Former Reagan-era economic guru who served as Director of the Office of Management and Budget running from 1981-1985 David Stockman ("Morning In America" architect, a program which some would label the legitimate beginning of "Sundown In America") has once again stepped out into the glare of lights! camera! interview! to unload some superatomic doom and gloom on interviewer Harry Dent. 

Probably emboldened by former Fed Chairman Alan Greenspan's interview at the close of last week--a chat which famously drew a distinct line between the state of the economy and the state of the stock market .  .  .  one in a perilous state and the other seemingly doing nuclear gangbusters--Stockman went ahead and slammed the entity of the Fed as Gambler In Chief, and essentially did everything but urge everyone to go out and party it up (cue scenes from Abel Gance's 1931 La Fin Du Monde) because the end times are nigh.

Greenspan warned that the economy is feeling eerily like the late Great Depression owing to wage anxieties, liquidity focused only on short term investment, and to a lack of long term capital injections due to a mass of uncertainty regarding where the whole over-inflated mess is headed. Stockman went much further and proclaimed,

"The Fed is a rogue institution,"and has led us right up to "one of the scariest moments in our history... it's a festering time-bomb and we're not sure when it will explode."

In case there was any morsel of uncertainty remaining out there regarding the man's feelings about fiscal policy over the past couple of decades , he went on--  

The fed is out of control. Its balance sheet is exploded. It's printing money like never before.

Zero interest rates for 70 months have basically destroyed the pricing function in the financial markets. As a result of this, Wall Street has become a huge casino which rewards gamblers, but it is not functioning as a capital raising, capital allocating instrument, which really is what the financial markets should do in a free market system. I warned about the size of the federal debt. I'm an old budget director from the Reagan days. We had a trillion dollar national debt, a 3 trillion economy when I started. Today, it's 18 trillion. Eighteen fold gain in the last 35 years versus maybe a fourfold gain in the economy. So all of these trends are taking our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that's been built up and created by the American people over decades and decades.

So people don't want to hear the warning. They don't want to hear the truth in the establishment, in Wall Street, in Washington, but I think out in the country they must.

He goes on stating what is patently obvious,

Well it's obvious that Wall Street is addicted to cheap money and unlimited flow of new liquidity into the markets. [...] It is destroying savers in America. If you worked a lifetime and saved $100,000.00, you're making $400.00 a year in interest from a lifetime of savings. I think there will be a revolt sooner or later of the American public against this disastrous crushing of the saver in order to essentially accommodate Wall Street's appetite for liquidity.

The problem is the fed, I've described, is a rogue institution. It's operating beyond any of the legislative intent or statutory authority that's been given to them over the years. They have essentially become a national monetary planning agency that has decided they can drive the daily, weekly, monthly movement of the economy by manipulating interest rates and the yield curve by putting a put under the stock prices by essentially trying to drive the entire 18 trillion or 17 trillion US economy from Wall Street. That is fundamentally at variance with the requisites of a healthy capitalist economy. You need an honest financial market. Not a manipulated one.

You need price discovery by people that have their money at risk, not the central bank.

In summary?

it's one of the scariest moments I think in our history, but also we need to recognize we're in uncharted waters. No central bank has ever printed this much money this long, kept interest rates at zero, fueled so much speculation. Not just here, but worldwide. Not just in the normal stocks and bonds, but the whole shale boom, for instance, in the United States was massively funded by cheap debt based on oil prices that weren't sustainable, and now that's all coming unwound. We have never had deficits of ten percent of GDP back to back, or even still four or five percent four or five years into a recovery.

And so when will the pigeons come home to roost?

There's really no magic numbers here, but it's remarkable that these central bank driven bubbles tend to peak after about six years. The dot com bubble started really in mid-1994 with the famous Netscape IPO. It crashed in March 2000, six years. The housing bubble roughly started in 2002. It totally crashed in 2008. Six years. The meltdown on Wall Street bottomed in March 2009. Add six years. 2015. I think we're at the end of this bubble simply based on the fact that they can't expand forever. They reach an asymptotic peak, and then confidence is lost, a catalyst occurs, a black swan appears, the selling begins, and there's nothing under this market. There is no safety net under this market.

The only thing interesting about this doomsaying is the breadth and variety it gives to the number of folks jumping onboard so that their careers will have a "I saw it coming! I am a prophet!" bullet point added to it when the final shoe drops on the current market bubble. Now the foundational architects of the policies that led to our current morass are out there warning against the machinery of their own construction. How novel!

Yes, any sane person can observe that Normal Working Man's Money operates in an entirely different universe than Wealthy Investor Money. Working Man's money is a part of the world and struggles to be viable in the very long term; Wealthy Stock Market Investor money fights with the rules of the real world and seeks cheats at every moment via secrets and loopholes is quite happy with illusion and the cycles thereof and serves nothing but itself for fast extra bucks which are taken and run with. The old Trickedowners who thought that putting money in the hands of the wealthy was the cure to all ills are now befuddled to discover fattened wealth seeks only to perpetuate itself by moving laterally hither and yon, dodging bullets like a fifth grader playing dodge ball.

You can view the whole conversation here.

Preston Clive

3/2/2015***