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David Stockman >> CNBC ..

worth watching imo

http://video.cnbc.com/gallery/?video=3000157770&play=1

Is 'Phony Money' Corrupting Capitalism in America?
TUE 02 APR 13 | 07:16 AM ET


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a grim diagnosis of the u.s. economy. political conflict and misleading stock market highs in new book the great deformation. david stockman. did you make that word up? great music coming out. this recovery has been fueled by, in his words, a flood of phony money. i just like when you talk, david. because no one -- you're an enigma wrapped in a riddle. you start talking. you say this is all bush's fault. and the left go, i love him. he's a hero. and you totally pop the bubble. i thought he was going to say i love this book. he read it and urinated all over it after that and said you didn't do any fact checking or something. i don't know. i think we're all in the bubble together. we have been for years. as a result we have a massive recency by us. my book says there's a massive state wreck ahead that's going to take down what remains of the free enterprise economy, prosperity on main street. it's not fixed. if you get rid of rosie scenario, which is what they are using today. and i know. i invented the first. i know what they look like. if you use realistic assumptions, the thing is 15 or 20 trillion. beyond the past of congress to deal with. the pain they're talking about, like cpi. that would save 200 billion, 1%, 2% of the problem. it's frozen, paralyzed. we have fiscal crisis year in, year out. quarter in, quarter out. go ahead. the other branch of the state is the fed, the central bank. it's a rogue system. it's the most dangerous bubble, serial bubble machine in history. it truly is. here we are for the third time back in the region of 1550. when we were last here on s&p 500, some of you were here. 4,750 days ago in march2000. we have had two massive crashes since then. two bubble reflations. we have only created 17,000 jobs a month when we need 150. most of them have been part-ti jobs, not in the middle class families supporting the economy. we have an economy drifting. a fed that pumps and repumps. you're not anti-capitalist. no. do you wish you could go back to free enterprise. and we have gotten away with that with crony capitalism. david, david, what is the role of the fed in a crisis? what should the fed be doing? exactly what badge et said in 1871. that is loaning freely at a penalty rate above the floating rate of the market. and that's where bernanke went totally wrong. the interest rates wanted to go to 6, 8, 10, 15% in order to basically cut down the excess and the wild speculation that was in the canyons of wall street at the time. he should have let interest rates go jpmorgan did it in1907. they carried out the real estate. would you say volcker did it too. when he went after the speculators, commodities he didn't say, please, can i raise the discount rate 25 basis points. torpedos began. it doesn't come without pain no matter how you -- there shouldn't be bubbles. and my book is really, among many things, an attack on the greenspan predicate that we can't see a bubble, hear a bubble. it just comes along and wait until it crashes. then after it crashes, flood the market with liquidity and then begin to inflate another one. that's wrong. the fed shouldn't be creating bubbles. if it were doing its original mission, to supply liquidity to banks at a floating interest rate -- the the fed is the central planner for the u.s. economy. 12 people on the open market committee are the monetary bureau of the western world. they can't do the job. they're failing. where would the economy be if e the fed had accepted and hadn't taken the steps. it's a hypothetical. the view according to you. it's what the whole case is based on. if you didn't violate every single rule of finances ever invented. sound money, balanced budget, free markets, consequence of failure. if you didn't violate all of that they say itld be far worse. here's what i do know, if the fed hadn't created the bubble by lowering interest rates to 1%, the housing calamity, we wouldn't have had the crash. you can't say once you have a crash created by the bubble of the fed but now you have to -- should the fed have done anything after9/11? that's where things went haywire. it's very strong, becky. if you look at the history you will see that the recession of '01/'02 was so slight it could barely be measured. it was .1 or.2 of gdp. greenspan panicked, totally panicked. third time he had done it. he did it in '87 after the meltdown. he did it in 1998 after long-term capital. that was terrible. david, i think what people worry about is you're describing, and i agree, we're going through a death of a thousand cuts. we're just bouncing along the bottom. some people wish we just flushed the system, let it out, let it go where they may. some people think with the depression that fed on itself and became worse than it had to be because you didn't do anything to stop it. a qaa their particular flush doesn't always work. you don't always coming out rip roaring. great depression was a unique circum i have a couple chapters, joe. you might want to take a look at it. it was the delayed aftereffect of the qaa fast any of world war i. you think we should have flushed the system in 2008? we should have flushed it in '87, '98 -- let the markets work. 08. we're doing the same thing over and over. didn't einstein say sign of insanity is when you do the same thing over and over and expect a different result. this is what we're doing now. any way for us to avoid? you have read mark faber. any way to avoid paper money being worthless? you know, i don't know. i think we're headed more for deflation than inflation. i thinkly people say the bond vigilantes they're happy. this is what he says. bond vigilantes are smart. they're simply front running the fed. everybody is front running the fed and repoing the bonds they buy at 98 cents on the dollar for 10 basis points. when the fed says i've got your back, you can borrow overnight, day in, day out. .

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