Wall Street Daily
July 9, 2013
Transcript of Interview:
Louis Basenese: We’re fortunate to have David Stockman with us today. He was elected as a Michigan Congressman in 1976, joined the Reagan Whitehouse in 1981, was appointed the Director of the Office of Management and Budget, and later became one of the early partners of the Blackstone Group. We’ve asked him to join us today to talk about, among other things, his bestselling book, The Great Deformation: The Corruption of Capitalism in America. Welcome, Mr. Stockman.
David Stockman: Glad to be with you.
LB: Great. Our readers have become accustomed to a very non-nonsense approach to the markets and economy, and after reading some of your book and your recent work, I’m excited to give them just that. Even if they don’t necessarily agree. So the first question I’ve got concerns America and really the state of our economy. I recently spoke with Ruchir Sharma, the Head of Emerging Markets at Morgan Stanley, and he thinks that the 2008 crisis reshaped the global economy and set up America to really break out and have a recovery that is unparalleled. But how would you respond to that viewpoint?
DS: I think that’s wishful thinking – fantasyland. The crisis of 2008 was just a symptom of the drift towards status economic policy worldwide, dominated by central banks – who manipulate all financial markets, repress interest rates, undermine price discovery in all of the capital markets and especially the stock market, countries all of which have become one way or another addicted to Keynesian fiscal stimulus. And as a result debt levels, sovereign debt levels worldwide are rising to a dangerous level in practically every country, including ours.
So therefore I think we have worldwide a huge financial bubble fueled by out-of-control central banks, fueled by fiscal policies that aren’t sustainable. And there will be a day of reckoning, and it will be worldwide, and there’s no way that we will dodge the bullet here. Because we’re probably the chief sinner among the lot if you look at our fiscal policy and what the Federal Reserve has been doing with this lunatic ZIRP and QE1, 2, 3, and QE to infinity and so forth.
LB: There’s so much to unpack there. I’ve got to start somewhere. Let’s start with our country’s debt burden. Are we being lied to about the size of the debt that we’re carrying right now?
DS: We’re being lied to about how we shouldn’t worry about the future because it’s slowly curing itself, that in the last couple of months you’ve been reading the deficit has come under a trillion dollars – and so therefore we’re on the path to recovery. The truth is, we have $17 trillion rounded today of national debt. And if you look out over the next 10 years with a sober forecast – not rosy scenario, not wishful thinking – but a forecast for GDP and unemployment and the other variables identical to what we’ve experienced in the last 10 years, you will end up with another $15 trillion of national debt. So when I add 17 and 15, I get over $30 trillion. I get upwards of 150% national debt to GDP, and that to me is unsustainable. It will lead to a collision, a crash-landing, somewhere down the road over the next few years.
LB: So you think this crash-landing, this situation works itself out into just disaster basically within a matter of years? There’s nothing we can do to push it down the road?