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David Stockman: "The two parties are in a race to the fiscal bottom to see which one can bury our children and grandchildren deeper in debt"

photo of the national debt clock

Politicians lie, but the national debt clock always tells the truth.  David Stockman interview with the Fiscal Times.  Plus a monster anti-Bernanke quote.


Update:  Stockman was on 60 Minutes Sunday...

60 Minutes: Fixing The Deficit By Taxing The Rich (Video)


David Stockman, the former budget director during Ronald Reagan’s first term, speaks out on the Obama presidency, the state of the economy, the Bush tax cuts, and what the midterm results might do to the Democratic agenda.

The Bush tax cuts are “unaffordable,’’ he says. Extending them would be a “travesty.”  President Obama’s stimulus program was “futile.”  Ben S. Bernanke, the Federal Reserve chairman, is undermining the whole economy. 

Today, Stockman says,

  • “I invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries.”

Stockman, Reagan’s budget director from 1981 to 1985, initially became famous for his zeal in slashing government spending on almost everything except defense.  Less government and lower taxes, he fervently believed, would ultimately mean more prosperity for everyone.  But he will be best remembered for confessing, in an interview with William Greider for The Atlantic Monthly, his disillusionment with the “supply-side” economic policies that led to soaring deficits under Reagan. “None of us really understands what’s going on with all these numbers,’’ he declared, along with many other criticisms that nearly got him fired.

The Fiscal Times (TFT):  What should the president and Congress do about the Bush tax cuts this year?  

David Stockman (DS): 

  • The two parties are in a race to the fiscal bottom to see which one can bury our children and grandchildren deeper in debt.  The Republicans were utterly untruthful when they recently pledged no tax increases for anyone, anytime, ever.  The Democrats are just as bad — running their usual campaign of political terror on social security and other entitlements while loudly exempting all except the top 2 percent of taxpayers from paying more for the massively underfunded government they insist we need.
  • In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion, which represented a 3.6X leverage ratio against national income or GDP.

The fact is, the Bush tax cuts were unaffordable when enacted a decade ago.  Now, two unfinanced wars later, and after a massive Wall Street bailout and trillion-dollar stimulus spending spree, it is nothing less than a fiscal travesty to continue adding $300 billion per year to the national debt.  This is especially true since these tax cuts go to the top 50 percent of households, which can get by, if need be, with the surfeit of consumption goods they accumulated during the bubble years.  So Congress should allow the Bush tax cuts to expire for everyone. By doing nothing, the government would be committing its first act of fiscal truth-telling in decades.

TFT:  Should the government provide more stimulus for the economy, or cut spending to bring the deficit down?

DS:  We are not in a conventional business cycle recovery, so stimulus is futile and just adds needlessly to the $9 trillion of Treasury paper already floating dangerously around world financial markets.  Instead, after 40 years of profligate accumulation of public and private debt, and reckless money-printing by the Fed, we had an economic crash landing, which left us with an enduring structural breakdown, not just a cyclical downturn.

  • The only solution is a long period of debt deflation, downsizing and economic rehabilitation, including a sustained downshift in consumption and corresponding rise in national savings.


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Reader Comments (18)

Budget reform will not happen without first passing campaign finance reform. Politicians spend money because they are PAID to spend money by the Fat Cats that want in our pocket. We are at the mercy of corporations run for profits, enabled by a privatized congress that shares in those profits. Our problem is NOT government, and it is not R's or D's. It *IS* that government is owned by the special interests that want in the taxpayer's pockets.

As a former CEO my company would not have survived if I had a board of directors who took money on the side and gave away company assets in return. Our country can't survive this corruption either.

Nothing is going to change until we have public funding of campaigns. What is it about political bribes do we not understand? They BUY political spending, which leads to deficits and high taxes.

If politicians are going to be beholden to their funders, those funders should be the taxpayers. And at $5 per taxpayer per year it would be a bargain. Even at 100 times that. We MUST lobby our senators and representative to co-sponsor the bill at: http://fairelectionsnow.org/about-bill

Jack Lohman ...
Oct 11, 2010 at 3:28 PM | Unregistered CommenterJack E Lohman
It's not that the so-called "Bush" tax RATE cuts were not affordable. Those who make such claims, including David Stockman, suffer from false beliefs.

It's that the continued increase in DEBT-BASED spending, that is, financed-based government spending is UNSUSTAINABLE given the annual sum of taxes collected to pay the interest charges on such borrowing.

Think of it this way. Let's say that a banker has given you one credit card and you max it out yet your income lets you make the minimum payment to the banker on your credit card as well as all your other bills -- taxes, rent, cooking gas, electric, gasoline.

Now, let's say other bankers start giving you credit cards, which you max out as well, immediately. Perhaps you bought haughty dinners, frilly clothes, and vacations to exotic places. Now, your SAME income is insufficient to pay the debt service to all those credit cards AND your bills.

This is the place politicians of the U.S. and Europe find themselves. Except their problem is far worse, since their re-election hinges of doling out this borrowed money to welfare collectees and unionized government workers.

Let's visit again our scenario. Let's say that even with those additional credit cards, you can make the debt service payments and pay all your bills AT THE CURRENT DEBT SERVICE RATE, that is, at the current interest rate.

Now let's say that because bankers have gotten nervous that some of their customers no longer have the income to pay back their debt, they raise the interest rate ON ALL CARD HOLDERS so that those card holders with higher incomes can offset the losses from those who lack enough income to pay.

This scenario is truly where U.S. politicians find themselves. The Federal Reserve bankers have said that soon, they must RAISE interest rates to ensure their member banks can earn profits. When this happens, the U.S. government can no longer pay the debt service on all of it's "credit cards" (bonds) given the income (taxes) it receives.

Thus, it is not that a reduction in taxes is not affordable. Rather, it is the continual acceptance of NEW CREDIT CARDS by politicians who max such out immediately that is unsustainable.
Oct 11, 2010 at 4:01 PM | Unregistered CommenterSmack MacDougal
smack...we both know the solution is massive spending cuts...it's the only way out...i post slightly alternative views for variety...but i like the stockman tells the truth about both parties' addiction to spending...
Oct 11, 2010 at 4:26 PM | Registered CommenterDailyBail
Four Deformations of the Apocalypse
Published: July 31, 2010

Oct 11, 2010 at 4:27 PM | Registered CommenterDailyBail
good post jack...you know that i agree with some form of publicly-financed elections...
Oct 11, 2010 at 4:27 PM | Registered CommenterDailyBail
The only solution necessarily involves painful choices related to Medicare, Medicade, Social Security and defense spending.

Reimpose Pay-Go.
Set debt-to-GDP targets.
Reduce defense spending.
Raise the Social Security eligible retirement age.
Raise the payroll tax wage-cap.
Reduce the growth in benefits; particularly for the "affluent".
Reduce the COLA for Social Security benefits.
Move away from a fee-for-service healthcare system.
Introduce malpractice reform.
Raise premiums for Medicare Part B and D.
Raise the Medicare eligibility age.
Allow the Bush tax cuts to expire.
Restructure the consumption tax.

The problem is that our citizens don't have the stomach for it and our elected officials don't have the berries for it.
Oct 11, 2010 at 4:52 PM | Unregistered CommenterD.M.W.
Good list, but do you really think the defense industry is going to tolerate a cut in spending? They are one of the biggest campaign contributors we have. And increasing Social Security eligibility? Do we have that many free jobs out there?

I favor (first) implementing public funding of campaigns. Without the bribes I think unnecessary spending will go down and politicians will get smart enough to fix the rest.
Oct 11, 2010 at 5:06 PM | Unregistered CommenterJack E Lohman
@DailyBail Agreed. You are right to give us Stockman. Stockman shows courage to come forth and say that something is rotten in the state of Demark.

Yet, Stockman fails to acknowledge truth, that Collectivism-based governance that supports oligopolistic economy and rewards political constituency from which power derives is unstable inherently.

The unstable nature of Collectivism-based governance leads to crashes in every economy where it exists. It results in a continual doubling up of rewards to political constituency to maintain power. Eventually, nothing remains from which to take and dole rewards. That's when collapse follows.
Oct 11, 2010 at 5:40 PM | Unregistered CommenterSmack MacDougal

You give us a long list of prescriptives, all of which let politicians to remain their deception as great givers of safety, and which let bureaucrats continue to earn income from uneconomic activity.

None of your prescriptives strike at the root.

In short, as long as we living under American-style Collectivism of taxation and redistribution, we must eliminate uneconomic activity to restore efficiency.

To do this is easy:

END Social Security.
END Medicare.
END Medicaid.
END Section 8.
END Farm Subsidy.
END Pell Grants.
END Student Loan underwriting.
END All Other Subsidy.

FIRE all government workers related to the above.

Instead, of having an uneconomic bureaucracy doling out benefits in lieu of cash, simply DOLE OUT CASH. Replace all of the above with a minimum income -- that is, as long as we're going to live under a Collectivist scheme of income taxation and redistribution.

The Great Price Bubbles Medicine, Elementary, Secondary and Higher Education would burst, immediately. Prices would fall and then adjust reflecting WHAT PEOPLE WANT, actually, instead of what they are eligible to get from politicians and bureaucrats under the existing scheme of Collectivist Governance we have.

Under this ONE TRUE FIX, the provision of goods arises from market forces and as such, becomes ECONOMIC. Resources get allocated correctly under my proposed ONE TRUE FIX. The provision of goods under the ONE TRUE FIX ends up reflecting the wants and desires of each adult.

Immediately, the ONE TRUE FIX eliminates the moral hazard created by citizens knowing they can abuse their bodies through food, alcohol and drugs, because they get a bailout in the form of Medicaid and Medicare medicine.
Oct 11, 2010 at 5:56 PM | Unregistered CommenterSmack MacDougal
Here are a few more…

Repeal Obamacare
Ask for Obama's credentials...then remove him from office.
Investigate Economic Crash...indict guilty executives.
Clawback ALL Ill-gotten Gains
End Bailout Programs
Give Government Pension Funds a haircut based on market realities and cash flow.
Investigate the Fed...make arrests for treason.
Investigate Government Favoritism, Cronyism, Nepotism, and Ethics Violations.
Review Government Salaries (Independent Review), bring them in line with private sector.
Stop buying weapons that we refuse to use in battle.
Attack Medicare, Social Security and Disability fraud with a vengeance.
Expel illegal aliens.
Expel all non-violent illegal aliens from jails.
Make Mexico, Central American and South American countries pay for the cost of imprisoning violent illegal aliens (country of origin).
Pass Federal Law to Ban State Lotteries.
Oct 11, 2010 at 6:00 PM | Unregistered CommenterZ
End excessive government severance (eliminate for 99.9% of government jobs).
Oct 11, 2010 at 6:02 PM | Unregistered CommenterZ
Z .... Great list. If the people in our government weren't so corrupt they would be pursuing every item on your list to benefit the American People.
Instead they are doing everything they can to cover up or ignore every item on your list.
I wonder who will benefit the most from those actions, or inactions?
Oct 12, 2010 at 2:22 PM | Unregistered CommenterSagebrush
How about closing the 700+ global military bases the US maintains and pulling out of our bonehead invasions and occupations of Iraq and Afghanistan? And when do the executives from Goldman Sachs meet their richly-deserved nooses? The bankers gamed the economy and have been punished -- not at all!?!?!
Nov 2, 2010 at 3:06 PM | Unregistered CommenterGordon Wagner
As long as the central banks (Rothschilds) with their fractional reserve banking control the country, there is no way out. There is no way to pay off the debt. There isn't enough money or assets. There has been a controlled steady transfer of the nation's wealth (past,present,future) into the oligarch's hands. The only solution will be to take it back.
Nov 2, 2010 at 5:08 PM | Unregistered Commenterrobertsgt40
Just how insane are we? Stockman said "In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion, which represented a 3.6X leverage ratio against national income or GDP."
Sources estimate that the world's supply of "gold" is 4 Trillion Dollar? Talk About Depression if we go back to the Gold Standard !!!! Total Government Failure is more like it!
End the Debt Money System, Congress Amends its right to print money, Congress prints money and controls its Quantity, Fed gets retired, Bankers are put on trial, found guilty of Crimes on Humanity and Crusified allong Waal Street!

Also make War on the Bank of England Rothschild Family in England and throughout Europe!
Nov 12, 2010 at 11:29 AM | Unregistered Commenterme
Please excuse my error! The total Gold estimate was 5 trillion Dollars!

Nov 12, 2010 at 12:05 PM | Unregistered Commenterme
Russia and China sign currency/ trade deal. http://en.rian.ru/business/20101123/161462980.html
Nov 23, 2010 at 1:50 PM | Unregistered Commenterjohn
Keep in the debt clock was not built past a billion. A trillion dollar debt is serious problems for us.
Nov 23, 2010 at 2:51 PM | Unregistered Commentertangel476

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