By MoneyMorning.com.au
Did you see the Sunday Times on March 31? The Sunday Review section — the part with opinion-forming editorials and columns, etc. — had a banner headline declaring ‘Sundown in America’. This was the intro to a 2,600-word article by David Stockman, former budget director for US President Ronald Reagan.
If you didn’t see the Stockman article, perhaps you saw summaries in other media. That is, we now have an economic ‘boom, bust, doom & gloom’ story with legs — and of course it drips with the holy water of top billing in the Old Gray Lady. The subject is now legitimate.
It’s respectable. Hey, I read about it in The New York Times!
Stockman Carpet Bombs the ‘State-Wrecked’ System
Basically, in his Times article (a summary of his new book, The Great Deformation: The Corruption of Capitalism in America), Stockman carpet-bombs the structure of American monetary and fiscal management (mismanagement, actually), using the term state-wrecked — an obvious play on the word shipwrecked.
True to his name, Stockman enters the corral like an angry sheriff, shooting at bad guys with blazing guns. ‘The United States is broke — fiscally, morally, intellectually,’ he writes. ‘The Fed has incited a global currency war…that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse.’
No sugar and spice from Stockman. Indeed, his article reads like the past 12 years of Daily Reckoning emails from Agora Financial. There are 50 shades of Bill Bonner’s gray musings about kinky abuse of the economy, by all manner of politicians and world-improvers.
Plus, Stockman channels other AF writing, concerning how screwed up is the US Federal Reserve (Fed) and how our government has wrecked the almighty US dollar.
One of Stockman’s key targets is the modern Fed. He skewers current Fed Chairman Ben Bernanke and previous Chairman Alan Greenspan (a ‘lapsed hero’), while allowing for the good — tight money — work of former chairmen William Martin and Paul Volker.
While I’m thinking about it, Stockman missed an easy layup by failing to mention the mess aided and abetted by Arthur Burns.
The 1998 bailout of Long-Term Capital Management by the Fed was ‘unforgiveable’, states Stockman. A decade later, the 2008 Wall Street bailout was ‘the single most shameful chapter in American financial history’.
On this last point, according to Stockman, ‘the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous.’
‘Graver Than Watergate’
Stockman plumbs the depths of history. He gets political, starting in 1933, and rips President Franklin Roosevelt for seizing the nation’s gold. It’s a sentence that ought to be a book.
Then Stockman jumps four decades, to ‘one perfidious weekend at Camp David, Md., in 1971,’ when then-President Richard Nixon ‘essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar.’
When Nixon closed the gold window of the US Treasury, it was ‘arguably a sin graver than Watergate.’
Stop the presses! When someone indicates that something was worse than Watergate — and does so in the pages of the Times, no less — we are approaching the orbit of a forbidden planet. So what was Nixon’s even higher crime?
Per Stockman, Nixon’s move, with the country’s gold, ‘meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog’. In essence, lacking the discipline of a gold-backed dollar, the US has undergone ‘an internal leveraged buyout.’
Stockman’s points make eminent good sense to anyone who’s been reading Agora Financial pubs for more than, say, a few months. After all, once you’ve been infected by a true case of gold fever, you carry the bug forever. Proudly. Gold Pride!
Still, to the liberal masses and hard-core Keynesian disciples out there — especially to that execrable, formulaic, one-size-fits-all political shill Paul Krugman — the Stockman message soars past like a stealth bomber in the night. Whoosh!
Stockman’s Gallery of Rogue Presidents
By my count, Stockman pillories FDR, as well as presidents Kennedy, Johnson, Nixon, Carter, Reagan (for whom Stockman worked), Bush I, Clinton, Bush II and Obama. On the other hand, Stockman offers a kind reference to the ‘balanced-budget policies’ of President Calvin Coolidge and more kind words about Eisenhower.
Stockman manages to avoid direct discussion of presidents Truman, Ford and Carter — although with respect to the last two chief executives, he distinctly recalls the bad days of the late 1970s. (As do I, by the way.)
The result of decades’ worth of loose money and undisciplined spending, according to Stockman, is that ‘Americans stopped saving and consumed everything they earned and all they could borrow.’
Meanwhile, states Stockman, China and Japan have ‘accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes.’
In a sidebar that should be familiar to energy investors, Stockman slams the so-called ‘green energy’ movement. He summarizes the recent green efforts by the Obama administration as ‘mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.’ Bingo!
Where Does This Go?
Stockman paints a dire picture. He indicts the current US political system, declaring that the US ‘Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills.’
Betraying utter pessimism, Stockman offers a selection of all-but-unattainable solutions that could, possibly, surprise even the most libertarian of readers.
For example, per Stockman, the US needs a ‘drastic deflation of the realm of politics and the abolition of incumbency itself,’ including ‘sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100% public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll.’
Of course, US governance could revert to colouring within the lines of that old Constitution, too — with those enumerated powers and such. Fat chance, right?
Will any of this happen? No way. Not when the captain, crew and most of the passengers on this ship are partying hard while the iceberg tears a hole in the bottom of the hull.
Of course, The New York Times has run many an article, over many years, about government overspending, national debt, gold and much more. The Times is a big, important newspaper for a reason. It influences people and moves markets.
But with this recent feature article in the Times, Stockman has now brought to the surface a set of formerly ‘unspeakable’ — at least amongst that crowd — monetary, fiscal and political points.
The dollar is dying, spending is out of control, debt is unmanageable and the economy is rotten through and through. (So other than the incident with the man and the gun, Mrs. Lincoln, how did you and the president enjoy the play?)
Editorialists of the world — and even the less-dense politicians — will now have to address the issues that Stockman has raised. Doubtless, they’ll move mountains to obfuscate the issues. But the door has opened to thinking about the unthinkable.
In terms of investment — certainly for our purposes here — Stockman is waving bright signal flags for a revival in the fortunes of gold, silver and other hard assets. His description of the decline of the dollar is a ringing endorsement for real stuff, like platinum, copper, oil and other things on which the world runs.
Plus, it’s fun to watch Krugman get all apoplectic as his entire worldview takes a hit.
Byron King
Contributing Editor, Money Morning
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