David Stockman is on the podcast today for his second appearance. He is a former United States congressman, who also served as the Director of The Office of Management and Budget under president Ronald Reagan. His books include, “The Great Deformation”, and “Trumped: A Nation on the Brink of Ruin… And How to Bring it Back”.
Michael and David start off discussing the recent news of Larry Summers suggesting that the Fed should start buying common stocks. David says that this is an act of sheer desperation and that any economist, 20 years ago, would have never come up with such an idea. What has happened is that policy makers have been led into a dead end path. “Madness” is how David describes the Fed right now. The mentality people have today, with Janet Yellen, is that intervention is necessary and without it, the whole system will fall apart. This mentality was not present prior to the year 2000 or maybe even 2008. Wall Street and Washington applaud the policy only because the market continues to go up.
Michael turns the conversation to the present election and asks David how he perceives the rise of Donald Trump and Bernie Sanders. “What does it say about America’s present state of mind?” David says it shows that America has had enough. The public is responding to Trump because he isn’t part of the system. Regardless of Trump’s stance on issues he will probably get a large part of Sanders supporters because they both have an “against the grain” political stance. David refers to Hillary Clinton as “the class president of a failed generation”. He gives examples back to 1991 when Bill Clinton was president, pointing out the senseless wars and damage that has been done to the economy due to policy. Clinton is “A survivor of what has been a 30 year consolidation of bad policy” says David. Hillary Clinton was the survivor who happened to be in the right place at the right time.
Next, David goes into his stance on Glass Steagall and how he would reinstate it in a way that would re-stabilize the financial system. Michael then has David elaborate on Deutsche Bank and some of the other problems the European banking system is facing. Michael asks, “What will happen if there is another 50% decrease on the S&P? What will the authorities do next?” David believes they are out of options. Going to negative interest rates will create a firestorm that they can’t take on. It will induce the sensible people in America to riot. A real correction will not happen until the market is able to stay down and correct from the damage that happened in the propping up in 2008. Michael and David finish up the podcast discussing the Chinese economy. David believes their economy is just as unsustainable as the United States. They are a “huge financial accident waiting to happen”.
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