Stockman On Bernanke's Actions: "The Ultimate Consequence Will Be A Train-Wreck"
Submitted by Tyler Durden on 04/02/2013 14:17

There is "not a chance," that the Fed will be able to unwind its balance sheet in an orderly manner, "because everybody is front-running [them]," as the Fed is creating "serial bubbles," that are increasingly hard to manage since "we're getting in deeper and deeper every time." David Stockman has been vociferously honest in the last few days and his Bloomberg Radio interview with Tom Keene was extremely so. While Keene tries his best to remain upbeat and his permabullish self, Stockman just keeps coming with body blow after body blow to the thesis that this 'recovery' is sustainable. "They are using a rosy scenario forecast for the next ten years that would make the rosy scenario of the 1981 Reagan administration look like an ugly duckling,," he exclaims, adding that the Keynesian Krugmanites' confidence is "disingenuous" - "the elephant in the room - the Fed," that are for now enabling rates to stay where they are. The full transcript below provides much food for thought but he warns, if the Fed ever pulled back, even modestly, "there would be a tremendous panic sell off in the bond market because it is entirely propped up... It's to late to go cold turkey."

Via Bloomberg Radio
(Stockman's comments on the following at the link above.)

On why he's so gloomy on the U.S. since every time we've gotten into this mess we get out of it with technological progress:

On Bill Dudley of the New York Federal Reserve Bank saying that he has confidence we can unwind all the damage we've done with a huge balance sheet:

On whether the Fed is going to be able to pull money out of Wall Street in an organized manner:

On what the alternative is given the deflationary trap that the U.S. is caught in:

On whether the Fed is trying to manage the bubble collapse:

On whether he has patience that the U.S. will grind its way out and get to a better place five or ten years from now:

On what Paul Krugman, Brad DeLong and others are getting wrong right now:

On deposit insurance:

On the Republican party:

On Paul Ryan's budget plan:

On how much fiscal drag is appropriate:

On whether he agrees with Glenn Hubbard who suggested that we need to go after entitlements on a long glide path and against the wealthy first:

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No, because we have been kicking the can for decades and decades, according to the advice of Keynesians like Hubbard. Hubbard is a complete Keynesian. He is a brilliant guy who told Bush cut taxes in 2001, cut taxes in 2003, oh, while you are at it, go have two unfinanced wars and don’t worry about the deficit because it doesn’t matter. This is the kind of advice Republicans are getting from the likes of Professor Hubbard, and it is no wonder that we are heading towards national bankruptcy. It has got to stop.

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On what would happen if we went cold turkey:

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It’s too late to go cold turkey. Nobody is going to do it, that is why we are drifting towards the wall. The deficit is much bigger than they are saying. As I indicated, with an honest economic forecast, just like we’ve had for ten years, you are looking at $15 trillion, $20 trillion. You are looking at a national debt $30 trillion.

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On whether he believes in American optimism and that we will grow and find a path through this:

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No, the optimism was in the people of Main Street, the entrepreneurs, the businessmen, the hard workers, the bus drivers, the farmers. I am attacking the elite. I am attacking the people that run Wall Street, the people inside the Beltway in Washington. I am attacking all of the Keynesian professors from both parties who have gotten us into this idea, just print enough money and we are going to get wealthier, just borrow enough money and we’re going to stimulate the economy.

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Thanks for the post. Stockman's been on a roll.

More from the transcript:

On Bill Dudley of the New York Federal Reserve Bank saying that he has confidence we can unwind all the damage we've done with a huge balance sheet:

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I don’t buy that because that huge balance sheet has gone nowhere. It has stayed right within the canyons of Wall Street. They have taken their balance sheet from $800 billion, which took 94 years to assemble, and in seven weeks they doubled it. They were printing money like $600 million an hour. It is now tripled, quadruple, up to $3.2 trillion.

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On whether he has patience that the U.S. will grind its way out and get to a better place five or ten years from now:

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No, because the ten year ago forecast said that we would have a surplus in 2012, that revenue would be $3.5 trillion, and it was $2.5 trillion. What they are using today is a rosy scenario forecast for ten years that would make the rosy scenario I did in 1981 in the Reagan administration look like an ugly duckling by comparison. They are saying that we are going to create 17 million jobs in ten years compared to two million in the last ten years, that we are going to go 14 years without a recession. It has never happened in history. Most cycles last 48 months. So when you actually do a forecast based on the last ten years, just say the performance in the last ten years, the growth rate, the business investment, job creation, you have $15 trillion to $20 trillion in deficits in front of us, not $7 trillion. We are not on a glide path going downward

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