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David Stockman on How the Deep State Really Works

David Stockman on How the Deep State Really Works

Deep State

International Man: Last year, President Trump took the unusual step of bypassing his advisors to announce his intention to withdraw all US troops from Syria quickly. The decision rattled Washington and the mainstream media. It caused former Defense Secretary Mattis to resign. Almost a year later, the US has withdrawn only a token number of soldiers. It still has thousands of troops occupying the part of the country where oil fields are located. What is going on here?

David Stockman: Well, that’s the Deep State at work.

Donald Trump is all by his lonesome. He’s home alone in the Oval Office. Now, half of it, he can blame himself. If he hires someone, a known idiot like John Bolton, what does he expect is going to happen except that everything he wanted to do is going to be undermined.

Nevertheless, he can’t seem to find anybody who can articulate on a day-to-day basis a pathway to the more restrained America First posture that he had in mind.

He’s surrounded by people who constantly countermand his orders. You have James Jeffery, the US Ambassador and special envoy to Syria saying, “Well, Trump didn’t mean that when he said he wanted the troops out of Syria.”

We have the same thing with North Korea. Trump finally said, here we are, 66 years after the armistice and we still don’t have a peace treaty, and we’re still occupying the Korean peninsula, which is of no interest to our national security one way or the other.

You have to do what I would call “contrafactual history.” In other words, if you understand what could have happened the other way, then maybe you’re not going to be so impressed with all this threat inflation.

 …click on the above link to read the rest of the article…

David Stockman on the Coming Financial Panic and the 2020 Election

David Stockman on the Coming Financial Panic and the 2020 Election

Coming Financial Panic

Doug Casey’s Note: David Stockman is a former congressman and director of the Office of Management and Budget under Ronald Reagan.

Now, anyone with connections to the government should elevate your suspicion level. But as you’ll see, David is a genuine opponent of government stupidity. Although his heroic fight against the Deep State during the Reagan Administration was doomed, he remains a strong advocate for free markets and a vastly smaller government.

We get together occasionally in the summer, when we’re both in Aspen. He’s great company and one of the few people in this little People’s Republic that I agree with on just about everything. Absolutely including where the US economy is heading.

I read his letter the Contra Corner every day and suggest you do likewise.

International Man: We seem to be near the top of the “everything bubble.” Almost nothing is cheap… anywhere. What are your thoughts on where people should put their money for prudence and for profit?

David Stockman: I would recommend recognizing that the “everything bubble” is the most extreme, exaggerated, severe financial bubble in world history. It will inevitably collapse, and there will be massive losses, even greater than occurred in 2008 and 2001.

So, the first thing is to stay out of the casino. By that, I mean the financial-market stocks, bonds, and everything else.

These markets are so artificial. They’re just chasing what the central banks are doing. There’s no honest price discoveries or supply and demand; nobody’s discounting the future of economic growth, productivity, and investment. You’ve got the chart monkeys, 29-year-old day traders who are in charge of the market.

 …click on the above link to read the rest of the article…

Pain Is Inevitable; But Suffering Is Optional

Pain Is Inevitable; But Suffering Is Optional

How to avoid becoming collateral damage in the coming crash.

Sometimes you really do find enlightenment at the top of the mountain.

I spent this week hiking in Montana’s Bitterroot mountain range, as a participant in the pilot run of a new personal-growth-through-adventure-travel startup.

In our group was a famous professional cyclist, who had been a superstar on the Tour de France for many years.

He has a fascinating life story, both on and off the bike. His tales of the super-human efforts required to prevail at the most elite level of this punishing sport are mind-blowing.

The relentless and gruelling training covering thousands and thousands of kilometers. The near-starvation state cyclists exist in to maximize their power-to-weight ratio. Endless travel. Horrific crash injuries. Sponsor pressures. The money and politics driving the sport. Overbearing regulators. Cut-throat teammates. And of course, the pervasive doping.

When we asked him how he managed to persevere at the top of such a demanding sport for so long, despite the huge toll it took on his health and his marriage, he thought for a moment then said: “I suppose I’m just really good at suffering”.

It’s clear that, in addition to some truly amazing experiences, his cycling days have left him with a legacy of damage that he’s still working through.

As he shared this with us, one participant wisely advised him to remember: Pain is inevitable. Suffering is optional.

Yes, he’ll still need to deal with the aftereffects of his racing years. But it’s up to him how much power he wants to give them over his happiness and life path from here.

From Mountains To Markets

I’m struck by how relevant the above advice is to investors right now.

It’s becoming increasingly clear that the end of the ten-year bull market has arrived.

 …click on the above link to read the rest of the article…

David Stockman: The Undrainable Swamp & The Inevitable Recession

David Stockman: The Undrainable Swamp & The Inevitable Recession

What the future of the post “Peak Trump” era holds.

Love it or hate it, the potency of the Trump Administration is on the wane, soon to be stuck in the mire of the Swamp it has deepend instead of drained, while the economy falls into one hell of a recession — so claims former Regan-era Cabinet member and Congressman David Stockman.

In his new book Peak Trump, Stockman notes how the wide divergence between Trump the campaigner and Trump the president appears to be proving to be his undoing.

Rather than fight to dismantle the institutions he railed against as a candidate — most notably the Deep State and the Federal Reserve — Trump has embraced them.

Now, when this latest asset bubble bursts (and Stockman believes the markets saw their peak back in Fall 2018), Trump will ‘own’ that. Having chosen to tie his administration’s success to the rising price of the S&P 500 since taking office, he won’t be able to foist the blame of a market crash on his predecessors.

Similarly, the Deep State — especially the military industrial complex — is experiencing a bonanza under the Trump administration. As a result, the Swamp is deeper than it has ever been:

I learned a long time ago as Budget Director and even before that as a member of Congress that the real deep end of the Washington swamp is on the Pentagon side of the Potomac. What Trump has done is basically taking a defense budget at $600 billion that was already swollen with waste and extending it far beyond anything you need for a homeland defense.

I have a whole section in the book about how a homeland of defense wouldn’t cost $600 billion that he inherited or now the $700 billion that we have. $720 billion actually, that after two huge Trump increases.

 …click on the above link to read the rest of the article…

The Donald Undone: Tilting At The Swamp, Succumbing To The Empire

The Donald Undone: Tilting At The Swamp, Succumbing To The Empire

You can’t build the Empire and drain the Swamp at the same time. That’s because the Swamp is largely the fruit of Empire. And it’s also the reason that the Donald is being rapidly undone.

Indeed, it is the Empire’s $800 billion national security budget which feeds Washington’s vast complex of weapons suppliers, intelligence contractors, national security bureaucrats, NGOs, think tanks, K-street lobbies, so-called “law” firms and all-purpose racketeers. It’s what accounts for the Imperial City’s unseemly and ill-gotten prosperity.

It goes without saying that the number one priority of these denizens of Empire is to keep the gravy train rolling. That is accomplished by inventing and exaggerating threats to America’s homeland security and by formulating far-flung and misbegotten missions designed to extend and reinforce Washington’s global hegemony.

As we demonstrate elsewhere, a true homeland security defense budget would consist of the strategic nuclear triad and modest conventional forces to defend the nation’s shoreline and air space; it would cost about $250 billion per year plus a few $10 billion more for a State Department which minded its own business.

So the $500 billion difference is the fiscal cost of Empire, which is pushing the US toward an immense generational fiscal crisis. But it’s also a measure of the giant larder that fills the Swamp with the projects and busywork of Washington’s global hegemony.

In fact, it is the vasty deep of that $500 billion larder which gives rise to the forces that not only thwart the Donald’s desire to drain the Swamp, but actually enlist him the cause of deepening its brackish waters.

Moreover, these missions encompass far more than direct military occupations, such as in Afghanistan and Iraq; or indirect aggressions, such as in Washington’s arming of anti-government terrorists in Syria and facilitating and supplying Saudi Arabia’s genocidal bombing campaign in Yemen…

…click on the above link to read the rest of the article…

The Nation’s Fiscal Doomsday Machine is Now Unstoppable

The Nation’s Fiscal Doomsday Machine is Now Unstoppable

Earlier this year the Donald provoked a bleep-hole moment per the Fox “family channel” or what was otherwise known as the shit-hole moment across the rest of the MSM.

But whatever you called the contretemps spurred by the president’s crude utterance with regard to certain countries domiciled on the African continent, the claim this was evidence that he’s an incorrigible racist was risible. Actually, we already knew that the Donald is a semi-literate bully, who never got (read) the memo on racial comity—to say nothing of political correctness.

Still, there is a not inconsiderable share of Washington’s preening, self-important ruling class that indulges in that very same kind of gutter talk on a regular basis when puffing their chests and marking the objects of their displeasure. That’s why the shaming chorus which sprung up from all corners of the Swamp was enough to give hypocrisy a bad name.

But if we have to have a shaming of politicians, there is a far better reason for it than that unfortunate presidential slur.

To wit, Trump and the GOP deserve everlasting ignominy for literally shit-canning fiscal rectitude. So doing, they have completely abandoned the GOP’s fundamental reason for being— watch-dogging the US Treasury—in favor of immigrant-bashing, border hysteria and what boils down to crude nativism by any other name.

You do not drain the Swamp and shackle Leviathan, however, by obsessing on and demogoguing about a non-problem that requires muscling up the state’s internal control apparatus and wasting tens of billions more on Mexican Walls, border enforcement armies and deportation dragnets across the length and breadth of the land.

The fact is, five pro-liberty and pro-free market steps would make the whole trumped up border “invasion” bunkum and balderdash go away in a heartbeat. These would include:
…click on the above link to read the rest of the article…

“No One Has Outlawed Recessions” Stockman Sees S&P Fair Value “Way Below 2000”

“If you’re a rational investor, you need only two words in your vocabulary: Trump and sell,” says David Stockman, former President Reagan’s Office of Management and Budget director, warning that a 40% stock market plunge is closing in on Wall Street.

While not the first time Stockman has warned of a catastrophe waiting to happen in markets, he told CNBC’s Futures Now that, after the worst monthly loss for global stocks since the financial crisis, that the early rumblings of that epic downturn are finally here.

“No one has outlawed recessions. We’re within a year or two of one,”  adding that:

“fair value of the S&P going into the next recession is well below 2000, 1500 – way below where we are today.”

According to Stockman, Trump’s efforts to get the Fed to stop hiking rates from historical lows is misdirected…

“He’s attacking the Fed for going too quick when it’s been dithering for eight years. The funds rate at 2.13 percent is still below inflation,”

Specifically, Stockman notes the trade war is a major reason why investors should brace for a prolonged sell-off.

“The trade war is not remotely rational,” he said.

If the dispute worsens, it “is going to hit the whole goods economy with inflation like you’ve never seen before because China supplies about 30 percent of the goods in the categories we import.”

Stockman ends on an even more ominous note:

“We’re going to be in a recession, and we’re going to have another market correction which will be pretty brutal,” Stockman said.

“[Trump]’s playing with fire at the very top of an aging expansion.”

For now, all traders can think about is tomorrow – but we suspect Stockman will be right in the end.

What Comes Next

What Comes Next

Previews of the coming reckoning

All things have a beginning, a middle and and end.

And now, more than 3,480 days into the current bull market, the longest in history, we can say with high confidence we are very close to its end.

Why?

For manifold reasons that are multiplying fast. So many, in fact, that each of the key speakers at the recent Peak Prosperity/Contra Corner Summit in New York City had difficulty finding enough time to enumerate them all during the six-hour event.

David Stockman, President Reagan’s budget head and former US Congressman, focused his warnings on the overconcentration of financialized (i.e., phony) profits in the world economy, which mask the steep decline in the production of tangible (i.e., real) value.

Among his long litany of examples of the sclerosis and fraud within today’s economy, he explained how so much of today’s euphoric stock prices are an artifact of the cheap credit made possible by the world’s central banking cartel — enabling a massive LBO of our corporate industry.

Long story short: artificially low rates have been allowing corporate executives, for years, to buy back a huge percentage of their company’s shares, enriching shareholders (most notably the execs themselves) in the immediate term, while saddling the underlying companies under tremendous leverage (1m:13s):

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As long as stock prices stay high and rates stay low, no one cares; they’re making too much money. But as rates rise and prices fall, these corporations will become crippled by their debt service requirements, be forced to lay off large swaths of their workforces, and quite possibly go out of business. Failures will ripple across the corporate landscape, sinking the US into prolonged recession.

As a society we’ll be the poorer for it. And suffer the full brunt of the pain this collapse of malinvestment will bring.

…click on the above link to read the rest of the article…

The End Of Cheap Debt: The Fall & Rise Of Interest Rates

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The End Of Cheap Debt: The Fall & Rise Of Interest Rates

Perhaps the greatest single trend impacting the next decade

Total debt (public + private) in America is currently at a staggering $67 trillion.

That number has been rising fast over the past 47 years, following the US dollar’s transformation into a fully-fiat currency in August of 1971.

Perhaps this wouldn’t be such a big concern were America’s income, measured by GDP, growing at a similar rate. But it’s not.

Growth in debt has far outpaced GDP, as evidenced by this chart:

In 1971, the US debt-to-GDP ratio was 1.48x. That’s roughly the same multiple it had averaged over the prior century.

But today? That ratio has spiked to to 3.47x, more than doubling over just 4 decades.

There are many troubling conclusions to draw from this, but here’s a simple way to look at it: It’s taking more and more debt to eke out a unit of GDP growth.

Put in other words: the US economic engine is seizing up, requiring increasingly more effort to function.

At some point — quite possibly some point soon — the economy will no longer be able to grow because all of its output must be used to service the ballooning debt load rather than future investment.

Accelerating this point of reckoning are two major recent trends: rising interest rates and the end of global QE.

Why? Because much of the recent explosion in debt has been fueled by central bank policy:

  • Interest rates have been on a steady decline since the 1980s, making debt increasingly cheaper to issue and to service.
  • Since 2008, central banks have been voracious buyers of debt. Countries/companies have been able to borrow $trillions, enabled (both directly and indirectly) by these “buyers of last resort”.

But both of those trends are ending, fast.

…click on the above link to read the rest of the article…

David Stockman: The World Economy Is At An Epochal Pivot

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David Stockman: The World Economy Is At An Epochal Pivot

A ‘Great Reset’ approaches

David Stockman warns that the global economy has reached an “epochal pivot”, a moment when the false prosperity created from $trillions in printed money by the world’s central banks lurches violently into reverse.

There are few people alive who understand the global economy and its (mis)management better than David Stockman — former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier — which is why his perspective is not to be dismissed lightly. He knows intimately how how our political and financial systems work, as well as what their vulnerabilities are.

And Stockman thinks the top for the current asset price bubble era is in — specificially, he thinks it hit its apex in January 2018. As this “Everything Bubble” prepares to burst, Stockman estimates the risk of economic crisis is as great, if not greater than, the 2008 Great Financial Crisis because of the radical and unsustainable monetary policy expansion the central banks have pursued over the past decade.
This has caused the prices of stocks, bonds, real estate and most other assets to appreciate at rates that have no basis in the ongoing income/cash flow of the global economy. In short, they are wildly overvalued.
A key condition that Stockman has been waiting to see, that serves as a signal the bubble’s bursting is nigh, is the concentration of speculative capital into fewer and fewer stocks as the “good” options for investors shrink. We now clearly see this in the FAANG complex (a topic covered in detail in our recent report The FAANG-nary In The Coal Mine)
Stockman’s main warning is that there’s no bid underneath this market — that when perception shifts from greed to fear, the bottom is much farther down than most investors realize. In his words, it’s “rigged for implosion”.

…click on the above link to read the rest of the article…

The Market Gods Are Laughing

POITOU, FRANCE – President Trump escalated the trade war yesterday, making a kamikaze attack on a vast armada of Chinese imports – $200 billion in total – headed for California.

The Chinese say they will retaliate.

Phony Wars

Last month, we opined that the trade war wouldn’t go any better than Vietnam… or Iraq… or any of the feds’ other phony wars – against drugs, poverty, or terrorists.

It will be expensive, futile… and perhaps disastrous.

But that doesn’t mean it won’t be popular. Wars give the spectators something to live for – us versus them… good guys against bad guys… winners versus losers.

Their hat size swells as their champion wallops the Chinese. Their girth shrinks as he challenges and taunts the Canadians. Their manhood grows when the enemy gives in and admits defeat.

But while this puerile entertainment is taking place in the arena, the real action is going on in the expensive skyboxes, where the elite collude against the fans.

Wars shift resources from the boring and productive win-win deals in the private sector to the magnificently absurd win-lose deals of the feds and their cronies. The only real winner is the Deep State.

Weatherman David

We saw our colleague, former U.S. budget chief under President Reagan, David Stockman, on TV yesterday. The interview was painful to watch.

He was bravely trying to explain the trade deficit and why it was caused by monetary policy, not by trade ramparts that were too low.

But the young, know-it-all newscasters were such numbskulls – so lacking in any experience, theory, or historical perspective – he might as well have been instructing a walrus on how to chew gum. The lesson was in vain.

The three TV experts saw no problem with the trade deficit… and no danger approaching from Trump’s war on it.

…click on the above link to read the rest of the article…

America First, Helsinki, and Trump’s Existential Threat to the Empire

America First, Helsinki, and Trump’s Existential Threat to the Empire

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The major – perhaps only – redeeming virtue of the Donald’s ersatz campaign platform was his clear intent to seek a rapprochement with Russia, revamp America’s commitments to NATO and other cold war relics and to discard “Regime Change” as the core tenant of foreign policy. In essence, “America First” was to become the new route to domestic security and safety.

Those eminently sensible notions struck the Deep State’s raison d’etre to the quick during the campaign; and by hook or crook, the Donald’s rapid fire actions toward these objectives since April have induced a palpable shock in the Imperial City.

Clearly he means to withdraw America’s 29,000 military hostages now stationed in South Korea in return for some sort of peace treaty, economic normalization and denuclearization arrangement with Kim Jong-un.

Likewise, he has sensibly suggested that demonizing Russia and Putin has accomplished nothing, and that they should be invited back into the G-8. And as soon as Robert Mueller finishes his RussiaGate farce, Trump can get rid of the present asinine sanctions on various Russian officials and Putin cronies, too.

We also now know – owing to the sullen reporting of the Washington Post – that Trump has been hounding the national security bureaucracy about another utterly ridiculous artifact of the Empire. Namely, the fact that 73 years after Hitler descended into Hades from his bunker and 27 years after the Soviet Union slithered off the pages of history, there are still 35,000 US troops in Germany:

The Pentagon is analyzing the cost and impact of a large-scale withdrawal or transfer of American troops stationed in Germany, amid growing tensions between President Trump and German Chancellor Angela Merkel, according to people familiar with the work.

…click on the above link to read the rest of the article…

David Stockman Warns “Daredevil” Market Is “Way Over-Priced For Reality”

David Stockman is not backing away from his ultimate bearish position, warning viewers of CNBC that “there are some huge surprises lurking out there” because “we’ve had eight years of monetary expansion that is just off the charts of history.”

He is certainly not wrong there…

President Reagan’s Office of Management and Budget director fears an aging stock market rally combined with potential headwinds from President Trump’s fiscal policy decisions (as well as questionable earnings expectations) means “it’s all risk and very little reward in the path ahead.”

“I call this a daredevil market…This market is just way, way over-priced for reality.”

As Nasdaq and Small Caps surge to new record highs, Stockman warns “the S&P 500 could easily drop to 1,600 because earnings could drop to $75 a share the next time we have a recession.”

“We’re about eight or nine years into this expansion. Everything is crazily priced. I mean the S&P 500 at 24 times at the end, tippy top of a business cycle.”

The current growth cycle has been the second longest on record:

But it has been much shallower than the previous cycles:

As a former budget director, it is likely no surprise that one of his biggest gripes with the bulls is the notion that President Donald Trump’s tax cuts are providing a fundamental lift to stocks.

These tax cuts are going to add to the deficit in the 10th year of an expansion. It’s just irresponsible crazy,” he said.

“It’s all going to stock buybacks and M&A deals anyway. That doesn’t cause the economy to grow. It’s just a short-term boost to the stock market that doesn’t last.”

Judging by the highest taxed companies performance relative to the market, Stockman may well have another point…

…click on the above link to read the rest of the article…

Why The Empire Never Sleeps: The Indispensable Nation Folly

Like the case of Rome before it, the Empire is bankrupting America. The true fiscal cost is upwards of $1.o trillion per year (counting $200 billion for veterans and debt service for wars), but there is no way to pay for it.

That’s because the 78-million strong Baby Boom is in the driver’s seat of American politics. It plainly will not permit the $3 trillion per year retirement and health care entitlement-driven Welfare State to be curtailed.

The Trumpite/GOP has already sealed that deal by refusing to reform Social Security and Medicare and by proving utterly incapable of laying a glove politically on Obamacare/Medicaid. At the same time, boomers keep voting for the GOP’s anti-tax allergy, thereby refusing to tax themselves to close Washington’s yawning deficits.

More importantly, the generation which marched on the Pentagon in 1968 against the insanity and  barbarism of LBJ’s Vietnam War have long since abandoned the cause of peace. So doing, boomers have acquiesced in the final ascendancy of the Warfare State, which grew like topsy once the US became the world’s sole superpower after the Soviet Union slithered off the pages of history in 1991.

Yet there is a reason why the end of the 77-year world war which incepted with the “guns of August” in 1914 did not enable the world to resume the status quo ante of relative peace and prosperous global capitalism.

To wit, the hoary ideology of American exceptionalism and the Indispensable Nation was also, ironically, liberated from the shackles of cold war realism when the iron curtain came tumbling down.

Consequently, it burst into a quest for unadulterated global hegemony. In short order (under Bush the Elder and the Clintons) Washington morphed into the Imperial City, and became a beehive not only of militarism, but of an endless complex of think-tanks, NGO’s, advisories and consultancies, “law firms”, lobbies and racketeers.

…click on the above link to read the rest of the article…

Jerome Is The New Janet: Tie, Trousers And Same Old Keynesian Jabberwocky

Jerome Is The New Janet: Tie, Trousers And Same Old Keynesian Jabberwocky

The election of 2016 was supposed to be the most disruptive break with the status quo in modern history, if ever. On the single most important decision of his tenure, however, the Donald has lined-up check-by-jowl with Barry and Dubya, too.

That is to say, Trump’s new Fed chairman, Jerome Powell, amounts to Janet Yellen in trousers and tie. In fact, you can make it a three-part composite by adding Bernanke with a full head of hair and Greenspan sans the mumble.

The overarching point here is that the great problems plaguing American society—scarcity of good jobs, punk GDP growth, faltering productivity, raging wealth mal-distribution, massive indebtedness, egregious speculative bubbles, fiscally incontinent government—-are overwhelmingly caused by our rogue central bank. They are the fetid fruits of massive and sustained financial repression and falsification of the most import prices in all of capitalism—–the prices of money, debt, equities and other financial assets.

Moreover, the worst of it is that the Fed is overwhelmingly the province of an unelected politburo that rules by the lights of its own Keynesian groupthink and by the hypnotic power of its Big Lie. So powerful is the latter that American democracy has meekly seconded vast, open-ended power to dominate the financial markets, and therefore the warp and woof of the nation’s $19 trillioneconomy, to a tiny priesthood possessing neither of the usual instruments of rule.

That is to say, never before in history has a people so completely and abjectly surrendered to an occupying power—even though its ostensibly democratic government already possessed all the votes and all the guns.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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