Special Guest: David Stockman
David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.
We interrupted David Stockman in Aspen where he was just finishing an article concerning the Cromnibus Bill which the Senate having passed was forwarding to the White House. You can easily sense the annoyance in David's tone about yet another "abomination" out of Washington of a $1.1T, 1600 page Bill and no one given the time to even read it. "Pork and earmarks" were blatantly evident and tacked all over it. As a former Washington insider he is very clear on what is wrong in Washington.
It seemed very appropriate to ask David on this day to talk with us about Financial Repression!
"Honest interest rates and financial asset prices come about from price discovery in the free market owing to the interplay of supply and demand for savings, borrowing and other forms of investment in the marketplace. The opposite of that is the regime we have today which I call the regime of financial repression.
It is characterized by Dishonest or false prices that are not set by the market but are administered by the central bank under the doctrine of ZIRP, QE, wealth effect and all of the other artifices they have invented to justify intervention in the heart of the financial market day-in and day-out! Capitalism cannot function efficiently nor can the economy grow at a healthy sustainable, balanced rate if you do not have a free market within the capital markets or money markets. It is at the very heart of the capitalist enterprise. Today we do not have that! We have absolute Financial Repression!
Banks Have Become Wards of the State
"We have a problem with the banking system in this country today and that is because banks as they now exist and function are not free market institutions by any shape, form, function or form of imagination! They are essentially wards of the state"
Stockman believes they would not exist in their current form nor would they take the kinds of risk they take if it were not for:
- The $9T of government deposit insurance,
- Access to the Fed's discount window,
- Banking licenses from the state which therefore shield them from the claims they would be exposed to otherwise.
The resulting level of malinvestment and market distortions will soon come to an end when we again have realistic price discovery. He believes it is "only a matter of time before we have another more cataclysmic financial meltdown" due to the sheer weight of speculation in this central bank, bubble driven era which is now occurring.
This is an unusually insightful discussion with someone that understands how tenuous the capitalist system is when mis-pricing of risk occurs through policies of Financial Repression and 78 continuous months of free money.
Financial Repression Authority - Podcast with David Stockman
PODCAST - 38 Minutes