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发帖数: 21627 | 1 By DAVID A. STOCKMAN
GREENWICH, Conn. -- The Dow Jones and Standard & Poor’s 500 indexes reached
record highs on Thursday, having completely erased the losses since the
stock market’s last peak, in 2007. But instead of cheering, we should be
very afraid.
David Stockman
Over the last 13 years, the stock market has twice crashed and touched off a
recession: American households lost $5 trillion in the 2000 dot-com bust
and more than $7 trillion in the 2007 housing crash. Sooner or later —
within a few years, I predict — this latest Wall Street bubble, inflated by
an egregious flood of phony money from the Federal Reserve rather than real
economic gains, will explode, too.
Since the S.&P. 500 first reached its current level, in March 2000, the mad
money printers at the Federal Reserve have expanded their balance sheet
sixfold (to $3.2 trillion from $500 billion). Yet during that stretch,
economic output has grown by an average of 1.7 percent a year (the slowest
since the Civil War); real business investment has crawled forward at only 0
.8 percent per year; and the payroll job count has crept up at a negligible
0.1 percent annually. Real median family income growth has dropped 8 percent
, and the number of full-time middle class jobs, 6 percent. The real net
worth of the “bottom” 90 percent has dropped by one-fourth. The number of
food stamp and disability aid recipients has more than doubled, to 59
million, about one in five Americans.
So the 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.
By default, the Fed has resorted to a radical, uncharted spree of money
printing. But the flood of liquidity, instead of spurring banks to lend and
corporations to spend, has stayed trapped in the canyons of Wall Street,
where it is inflating yet another unsustainable bubble.
When it bursts, there will be no new round of bailouts like the ones the
banks got in 2008. Instead, America will descend into an era of zero-sum
austerity and virulent political conflict, extinguishing even today’s
feeble remnants of economic growth.
THIS dyspeptic prospect results from the fact that we are now state-wrecked.
With only brief interruptions, we’ve had eight decades of increasingly
frenetic fiscal and monetary policy activism intended to counter the
cyclical bumps and grinds of the free market and its purported tendency to
underproduce jobs and economic output. The toll has been heavy.
As the federal government and its central-bank sidekick, the Fed, have
groped for one goal after another — smoothing out the business cycle,
minimizing inflation and unemployment at the same time, rolling out a giant
social insurance blanket, promoting homeownership, subsidizing medical care,
propping up old industries (agriculture, automobiles) and fostering new
ones (“clean” energy, biotechnology) and, above all, bailing out Wall
Street — they have now succumbed to overload, overreach and outside capture
by powerful interests. The modern Keynesian state is broke, paralyzed and
mired in empty ritual incantations about stimulating “demand,” even as it
fosters a mutant crony capitalism that periodically lavishes the top 1
percent with speculative windfalls.
The culprits are bipartisan, though you’d never guess that from the blather
that passes for political discourse these days. The state-wreck originated
in 1933, when Franklin D. Roosevelt opted for fiat money (currency not
fundamentally backed by gold), economic nationalism and capitalist cartels
in agriculture and industry.
Under the exigencies of World War II (which did far more to end the
Depression than the New Deal did), the state got hugely bloated, but
remarkably, the bloat was put into brief remission during a midcentury
golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in
the White House and William McChesney Martin Jr. at the Fed.
Then came Lyndon B. Johnson’s “guns and butter” excesses, which were
intensified over one perfidious weekend at Camp David, Md., in 1971, when
Richard M. Nixon essentially defaulted on the nation’s debt obligations by
finally ending the convertibility of gold to the dollar. That one act —
arguably a sin graver than Watergate — meant the end of national financial
discipline and the start of a four-decade spree during which we have lived
high on the hog, running a cumulative $8 trillion current-account deficit.
In effect, America underwent an internal leveraged buyout, raising our ratio
of total debt (public and private) to economic output to about 3.6 from its
historic level of about 1.6. Hence the $30 trillion in excess debt (more
than half the total debt, $56 trillion) that hangs over the American economy
today.
This explosion of borrowing was the stepchild of the floating-money
contraption deposited in the Nixon White House by Milton Friedman, the
supposed hero of free-market economics who in fact sowed the seed for a
never-ending expansion of the money supply. The Fed, which celebrates its
centenary this year, fueled a roaring inflation in goods and commodities
during the 1970s that was brought under control only by the iron resolve of
Paul A. Volcker, its chairman from 1979 to 1987.
Under his successor, the lapsed hero Alan Greenspan, the Fed dropped
Friedman’s penurious rules for monetary expansion, keeping interest rates
too low for too long and flooding Wall Street with freshly minted cash. What
became known as the “Greenspan put” — the implicit assumption that the
Fed would step in if asset prices dropped, as they did after the 1987 stock-
market crash — was reinforced by the Fed’s unforgivable 1998 bailout of
the hedge fund Long-Term Capital Management.
That Mr. Greenspan’s loose monetary policies didn’t set off inflation was
only because domestic prices for goods and labor were crushed by the huge
flow of imports from the factories of Asia. By offshoring America’s
tradable-goods sector, the Fed kept the Consumer Price Index contained, but
also permitted the excess liquidity to foster a roaring inflation in
financial assets. Mr. Greenspan’s pandering incited the greatest equity
boom in history, with the stock market rising fivefold between the 1987
crash and the 2000 dot-com bust.
Soon Americans stopped saving and consumed everything they earned and all
they could borrow. The Asians, burned by their own 1997 financial crisis,
were happy to oblige us. They — China and Japan above all — 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.
This dynamic reinforced the Reaganite shibboleth that “deficits don’t
matter” and the fact that nearly $5 trillion of the nation’s $12 trillion
in “publicly held” debt is actually sequestered in the vaults of central
banks. The destruction of fiscal rectitude under Ronald Reagan — one reason
I resigned as his budget chief in 1985 — was the greatest of his many
dramatic acts. It created a template for the Republicans’ utter abandonment
of the balanced-budget policies of Calvin Coolidge and allowed George W.
Bush to dive into the deep end, bankrupting the nation through two
misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-
cutting spree for the wealthy that turned K Street lobbyists into the de
facto office of national tax policy. In effect, the G.O.P. embraced
Keynesianism — for the wealthy.
The explosion of the housing market, abetted by phony credit ratings,
securitization shenanigans and willful malpractice by mortgage lenders,
originators and brokers, has been well documented. Less known is the balance
-sheet explosion among the top 10 Wall Street banks during the eight years
ending in 2008. Though their tiny sliver of equity capital hardly grew,
their dependence on unstable “hot money” soared as the regulatory harness
the Glass-Steagall Act had wisely imposed during the Depression was totally
dismantled.
Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington
, with Wall Street’s gun to its head, propped up the remnants of this
financial mess in a panic-stricken melee of bailouts and money-printing that
is the single most shameful chapter in American financial history.
There was never a remote threat of a Great Depression 2.0 or of a financial
nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed
chairman since 2006. The Great Fear — manifested by the stock market plunge
when the House voted down the TARP bailout before caving and passing it —
was purely another Wall Street concoction. Had President Bush and his
Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood
firm, the crisis would have burned out on its own and meted out to
speculators the losses they so richly deserved. The Main Street banking
system was never in serious jeopardy, ATMs were not going dark and the money
market industry was not imploding.
Instead, 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. The auto bailouts, for example, simply
shifted jobs around — particularly to the aging, electorally vital Rust
Belt — rather than saving them. The “green energy” component of Mr. Obama
’s stimulus was 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.
Less than 5 percent of the $800 billion Obama stimulus went to the truly
needy for food stamps, earned-income tax credits and other forms of poverty
relief. The preponderant share ended up in money dumps to state and local
governments, pork-barrel infrastructure projects, business tax loopholes and
indiscriminate middle-class tax cuts. The Democratic Keynesians, as
intellectually bankrupt as their Republican counterparts (though less
hypocritical), had no solution beyond handing out borrowed money to
consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least
, dinner at Red Lobster.
But even Mr. Obama’s hopelessly glib policies could not match the audacity
of the Fed, which dropped interest rates to zero and then digitally printed
new money at the astounding rate of $600 million per hour. Fast-money
speculators have been “purchasing” giant piles of Treasury debt and
mortgage-backed securities, almost entirely by using short-term overnight
money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has
lined their pockets.
If and when the Fed — which now promises to get unemployment below 6.5
percent as long as inflation doesn’t exceed 2.5 percent — even hints at
shrinking its balance sheet, it will elicit a tidal wave of sell orders,
because even a modest drop in bond prices would destroy the arbitrageurs’
profits. Notwithstanding Mr. Bernanke’s assurances about eventually,
gradually making a smooth exit, the Fed is domiciled in a monetary prison of
its own making.
While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D.
Ryan, the chairman of the House Budget Committee, are terrified of telling
the truth: that the 10-year deficit is actually $15 trillion to $20 trillion
, far larger than the Congressional Budget Office’s estimate of $7 trillion
. Its latest forecast, which imagines 16.4 million new jobs in the next
decade, compared with only 2.5 million in the last 10 years, is only one of
the more extreme examples of Washington’s delusions.
Even a supposedly “bold” measure — linking the cost-of-living adjustment
for Social Security payments to a different kind of inflation index — would
save just $200 billion over a decade, amounting to hardly 1 percent of the
problem. Mr. Ryan’s latest budget shamelessly gives Social Security and
Medicare a 10-year pass, notwithstanding that a fair portion of their nearly
$19 trillion cost over that decade would go to the affluent elderly. At the
same time, his proposal for draconian 30 percent cuts over a decade on the
$7 trillion safety net — Medicaid, food stamps and the earned-income tax
credit — is another front in the G.O.P.’s war against the 99 percent.
Without any changes, over the next decade or so, the gross federal debt, now
nearly $17 trillion, will hurtle toward $30 trillion and soar to 150
percent of gross domestic product from around 105 percent today. Since our
constitutional stasis rules out any prospect of a “grand bargain,” the
nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot
tragedy, in carefully choreographed crises over debt ceilings, continuing
resolutions and temporary budgetary patches.
The future is bleak. The greatest construction boom in recorded history —
China’s money dump on infrastructure over the last 15 years — is slowing.
Brazil, India, Russia, Turkey, South Africa and all the other growing middle
-income nations cannot make up for the shortfall in demand. The American
machinery of monetary and fiscal stimulus has reached its limits. Japan is
sinking into old-age bankruptcy and Europe into welfare-state senescence.
The new rulers enthroned in Beijing last year know that after two decades of
wild lending, speculation and building, even they will face a day of
reckoning, too.
THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed
in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting
because the Fed had tamed the business cycle and, as late as March 2007,
testified that the impact of the subprime meltdown “seems likely to be
contained.” Instead of moderation, what’s at hand is a Great Deformation,
arising from a rogue central bank that has abetted the Wall Street casino,
crucified savers on a cross of zero interest rates and fueled a global
commodity bubble that erodes Main Street living standards through rising
food and energy prices — a form of inflation that the Fed fecklessly
disregards in calculating inflation.
These policies have brought America to an end-stage metastasis. The way out
would be so radical it can’t happen. It would necessitate a sweeping
divorce of the state and the market economy. It would require a renunciation
of crony capitalism and its first cousin: Keynesian economics in all its
forms. The state would need to get out of the business of imperial hubris,
economic uplift and social insurance and shift its focus to managing and
financing an effective, affordable, means-tested safety net.
All this would require drastic deflation of the realm of politics and the
abolition of incumbency itself, because the machinery of the state and the
machinery of re-election have become conterminous. Prying them apart would
entail sweeping constitutional surgery: amendments to give the president and
members of Congress a single six-year term, with no re-election; providing
100 percent 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. It would also
require overturning Citizens United and mandating that Congress pass a
balanced budget, or face an automatic sequester of spending.
It would also require purging the corrosive financialization that has turned
the economy into a giant casino since the 1970s. This would mean putting
the great Wall Street banks out in the cold to compete as at-risk free
enterprises, without access to cheap Fed loans or deposit insurance. Banks
would be able to take deposits and make commercial loans, but be banned from
trading, underwriting and money management in all its forms.
It would require, finally, benching the Fed’s central planners, and
restoring the central bank’s original mission: to provide liquidity in
times of crisis but never to buy government debt or try to micromanage the
economy. Getting the Fed out of the financial markets is the only way to put
free markets and genuine wealth creation back into capitalism.
That, of course, will never happen because there are trillions of dollars of
assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest
housing market “recovery,” artificially propped up by the Fed’s interest-
rate repression. The United States is broke — fiscally, morally,
intellectually — and the Fed has incited a global currency war (Japan just
signed up, the Brazilians and Chinese are angry, and the German-dominated
euro zone is crumbling) that will soon overwhelm it. When the latest bubble
pops, there will be nothing to stop the collapse. If this sounds like advice
to get out of the markets and hide out in cash, it is.
David A. Stockman is a former Republican congressman from Michigan,
President Ronald Reagan’s budget director from 1981 to 1985 and the author,
most recently, of “The Great Deformation: The Corruption of Capitalism in
America.” |
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