Sunday, March 31, 2013

MUST READ: The Corruption of Capitalism in America

By David Stockman

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.

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.

Read the rest here.

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.”


  1. The commentary below that article is cringe-worthy beyond belief. It's a parade of mini-Krugmans.

    1. How so, when Krugman would tell us there's no big deal to worry about?

  2. If it is in the nytimes and this bleak in assessment then imagine how bad it REALLY is.

  3. I remeber David Stockman as being one sharp guy with budget spreadsheets.

    He relates "THIS dyspeptic prospect results from the fact that we are now state-wrecked."

    It is God who is doing the state wrecking, as all things are of God, 2 Corinthians 5:18.

    We are witnessing the end of democratic nation states as foretold by the Prophet Daniel in Daniel 2:25-45, where a Ten Toed Kingdom of Regional Governance arises out of the failure of the dual iron global hegemony of the British Empire, and the US War For Oil Empire.

    The AP reported S&P 500 moves above its record high. The chart of the Standard & Poor's 500, $SPX, SPY, shows a new daily high at 1,569,up 0.75% for the week, beating a previous all-time high set in pre-financial crisis on a rising US Dollar, $USD, UUP, which closed at $83.14, up also 0.75% for the week, while the Major World Currencies, DBV, traded lower commencing competitive currency devaluation. Action Forex reports that the EUR/JPY closed at 120.46; its Yahoo Finance Chart, when combined with European Shares, VGK, and US Shares, VTI, shows that investors have been rotating out of the former and into the latter since February 1, 2013 on fears of EU default. Nasdaq Large Cap Socks, QQQ, have been a safe haven investment for flight from EU debt crisis contagion.

    A tectonic geopolitical and economic shift is at hand, as the global economic paradigm of Liberalism is at a pivot point and is about to enter Authoritarianism, as the world central banks monetary policies of debt monetization and ZIRP, have crossed the rubicon of sound monetary policy, resulting in the exhaustion of monetary expansion. The Apostle Paul writes that it is Jesus Christ who is at the helm of the Economy of God, Ephesians 1:10. He has been expanding credit globally through the Fed’s QE 1 through 4, the ECB’s OMT, and the BoJ Unlimited Easing; but the world is passing through Peak Credit on Eurozone sovereign and banking insolvency, as is seen in European Stocks, VGK, and the European Financial Institutions, EUFN, trading lower, which have turned World Banks, IXG, and the Asset Managers, BLK, WDR, EV, STT, WETF, AMG, seen in this Finviz Screener, and the Credit Service Companies, such as V, MA, DFS, AXP seen in this Finviz Screener, topping out in value.

    Inflationism is turning to destructionism as the dynamos of global growth and corporate profitability, that have underwritten crony capitalism and eurozone socialism wind down; and the dynamos of regional security, stability, and sustainability, wind up, establishing regionalism The world is passing from being a credit and carry trade banker centric world to a diktat and regional governance centric nannycrat world.

    The world stands at Peak Toxic Credit, as is seen in the chart of Fidelity Investments Mutual Fund FAGIX, topping out. This mutual fund contains the most distressed of investments, which were taken in under QE 1 and exchanged for “money good” US Treasuries, which were returned to the Fed and are now classified as Excess Reserves. The banks really do own the US Treasuries residing at the Fed, but will not, repeat not be selling them at any time. And indeed for a while as stocks, VT, trade lower, these will be increasing in value before they too fall dramatically lower in value. Shortly the banks will become integrated with the Fed, and be known as the government banks, or Govbanks, for short. The Too Big To Fail Banks, RWW, will be seen and will exist as Big Enough To Help Govern. The same will be true in the Eurozone, the European Financials, EUFN, will be unified into a One Euro Government, as leaders meet in summits to waive national sovereignty and pool sovereignty regionally, and announce regional framework agreements which establish EU regional governance.

    In summary, the S&P 500, $SPX, SPY stands at an Elliott Wave 5 High; the Business Cycle has been completed; and the world is entering Kondratieff Winter, which will see all existing political and economic life destroyed.

  4. I noticed 3 no-nos:

    1. says Glass-Steagall necessary
    2. says ww2 got us out of depression
    3. says taxes should be raised

    otherwise good stuff

    1. 4. says the DOW is at an all-time high -- it's not even close when measured in constant dollars (even when using the government's phoney CPI index to adjust dollar values)

    2. 4. says the DOW is at an all-time high -- it's not even close when measured in constant dollars (even when using the phoney BLS CPI indext to adjust dollar values)

  5. Sadly, his recommendations are for more central planning - somehow his central planning is better than [fill in the blank]'s central planning.

    Is there something so wrong about free markets that, even when someone sees the catastrophe of government intervention as clearly as Stockman does (and he is great at this), they cannot be recommended?

  6. Blackstone's and Carlyle Group's of the world love central planning. Stockman was an early Blackstone partner before leaving to form Heartland Industrial Partners.