The monetary policy politburo

In a fascinating 30-minute interview, David Stockman – a former Director of the Office of Management and Budget under President Ronald Reagan – discusses the global debt super-cycle of the last forty years, how he thinks it developed, how it might be tackled, and how it’s probably going to end, which he thinks will be less than pretty:

6 Comments

  • Paul Marks says:

    How the credit bubble will turn out? But have you not heard? There is no credit bubble – banks just put the savings of people to work and interest rates only fall if there is a increase in saving, not via credit expansion (credit bubble building).

    Yes I am still irritated by the blatent falsehoods of certain Georgia based academic (George Selgin).

    David Stockman – yes I remember him. He did his best in 1981 and so on – but unless one gets rid of FUNCTIONS government spending can not be fundementally reduced.

    The terrible thing is that there are two de facto bankruptcies comming upon us (not one) – and either of the bankrupcies are serious enough to break the West.

    There is the credit bubble (monetary), financial system collapse.

    And there is also a fiscal collapse comming – the fiscal bankruptcy that the Welfare States are leading to.

    It is an interesting technical question (which I leave to people more knowledgeable than myself) whether truly dramatic reform could save the West as we know it.

    However, sadly, from a practical point of view this does not matter – as there is zero political will for such truly dramatic reform (in either the monetary or fiscal aspects of the civilisational crises we fase – a crises that has been building for so long).

    Like so many people I have watched the current crises (both monetary and fiscal) building for many years – and been powerless to prevent it.

    No doubt future generations will curse “those who knew what was comming but did nothing to prevent it” – but I do not know what I could have done.

    People in humble positions in life (and my position in life has always been at the bottom) only have a voice (we have no power – not even the influence that David Stockman once had).

    All we can do is to raise our voices in protest, to point out that liars are liars. And there are negative consequences even for that.

    I honestly believe that there is nothing we could have done – not even people like David Stockman who once had influence (please note that I wrote “influence” not “power” – David Stockman did not really have much power, sadly).

    Future generations will not believe us and (as I say above) will curse us.

    If I could speak to these future generations I would say this…

    “What would you have had me do? I have many of faults, but I am not a coward – I would gladly have laid down my life to save you the terrible times you suffer. But HOW could I have saved you?”

    Speaking personally (for I am the example I know most about), I have been tormented by the knowledge of what is comming for more than 20 years. I can honestly say there has not been a day when I have not been tormented by the knowing what is to come, and by total failure to do anything to stop it.

    If people who do not (and never will) know me, can not believe that I would have done anything to save them (which I would have), I would ask them to at least believe that I would have acted to end my own torment – torment over decades.

    If only I could have worked out any way of doing so.

    • mrg says:

      I too fear the worst, but I have trouble reconciling this with the knowledge that balancing the books (in the UK, at least) wouldn’t be very difficult.

      All we’d need to do is roll spending back (in real terms) to the early-mid New Labour years.

      Why is total collapse inevitable?

      • Paul Marks says:

        mrg.

        I will leave aside the monetary side, because you asked a fiscal point.

        “All we need to do is roll back government spending to the mid point of the Blair years.”

        Let us say, for the sake of argument, that this was true.

        There is ZERO chance of that happening.

        Indeed the government announces MORE spending every other day.

        Nine billion on the railways, fifty billion on corporate welfare loan securities.

        And on and on.

        As for real cuts in the NHS and so on – to take it back to the level of spending it was only a few years ago.

        Again – no chance, none.

        And what are the people going to do?

        Vote for a Conservative Prime Minister?

        In theory we already have one (Mr David Cameron – and his friend Mr George Osbourne).

        It is more likely that the people will blame their problems on the “free market” and “austerity” policies of the present government – and vote the Reds in.

        I wish I could say the basic situation is fundementally different in other Western nations – but it is not.

  • Paul Marks says:

    By the way – as a small example of how blind the establishment are.

    Only last week the Economist magazine had a feature on the wonderful American revovery – for example how real estate is a really good investment because American houses are “undervalued”.

    I did not know whether to laugh or cry.

  • Correction and Revaluation is all that will be required. As the man said, USD is all the World has for a Reserve Currency and the others are in an even worse state. Finally ad to that, the West has the War Machine that can ‘Change the Rules’ globally, at the touch of a button ….. now things don’t seem all to bad, do they? :)

  • Paul Marks says:

    Mr Blackwell I take it you are being ironic.

    The American Dollar is, of course, a fiat currency which the Federal Reserve can increase without limit – other than the limit of economic breakdown. This it is doing….

    Both to save the credit bubble (bank credit “broad money”, M3 and so on) and to finance government spending (the Fed either buys government debt directly or lends newly created money [created from NOTHING] on the understanding that this money will be lent back to the government to finance government spending).

    Should any of this be pointed out, even to the “free market” wing of the establishment they will deny it and claim there is an “idenity” between lending and saving, so any increase in borrowing must (by defintion) mean there is an increase in saving.

    When it is pointed out that this is an obvious falsehood, they will reply that it is not a lie – it is a “banal statement” (as I have pointed out before that is like me claiming to be Winston Churchill and then, when challenged, claiming that I had not told a lie – I had simply made a “banal statement”).

    Alterntativelly they will refer you to goods and services – rather than to money.

    Much like the French Revolutionaries they will claim that as there is land and other goods their fiat money must have value (the fiat money of the French Revolution somehow “represented” these things – although if anyone asked for the piece of the land the note supposedly represented, in return for the note, they were EXECUTED).

    Or they will refer you to a water bottle.

    As water (and other goods) can be saved, there is no need to save money – or so the “arguement” goes.

    In certain circumstances this actually has a grain of truth in it – however it does depend on the water (or whatever) ACTUALLY EXISTING. The person who claimed to be “saving water” actually having the water.

    For example, I will be in the desert in Israel in November – so if I or someone with me “saves water” I would rather like it if the WATER ACTUALLY EXISTS.

    When establishment people (including on the “free market” wing of the establishment) talk about “saving water” (rather than saving money) the water turns out NOT TO EXIST.

    I hold this to be a problem – indeed to be a rather important problem.

    It is much like the claim that bank lending is “100%” backed by a bank’s “capital and reserves”.

    This claim sounds very impressive, till one finds out that by the definition the people making the claim (the claim of “100%” coverage) are using, “capital and reserves” have no more objective reality than magic pixie dust.

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