David Stockman: The Federal Reserve Is Out of Control (Video)

David Stockman told Fox Business that the United States’ biggest economic priority should be getting the Federal Reserve under control. With a balance sheet that has quadrupled in just a few years, the Fed is incapable of sustaining its fiscal policy. Raising the Fed funds rate will add billions more to the already ballooning debt. The only way out of this perilous scenario, according to Stockman, is to get out of blind currency printing and back to sound money.

Highlights from the interview:

“We have a central bank, the Fed, that’s out of control and has been for years. We have now printed more money than was even imaginable 10 years ago. $4.5 trillion. We started at the time of the financial crisis with a balance sheet at the Fed of $900 billion. It took 94 years to get there, and in a few weeks, and months, and years, we’ve quadrupled it.

“We had the Fed flood Wall Street with money and start the speculative game again. Today, the stock market is at a crazy high… This is built on basically liquidity injections of massive magnitude from the Fed.

“It’s left us with $18 trillion worth of debt at the federal level. It’s left us with $60 trillion worth of debt in the public and private sphere combined… It is 3 and a half times GDP, the highest leverage ratio in history. It’s the reason why our economy labors to make 1% or 2% growth, even after all this stimulus.

“First, we haven’t abolished the business cycle. We’re already 6 years into this expansion. If you look at the budgets from either the House Republicans or the White House, they assume there is never a recession, never a dislocation, never any economic troubles again in all of history… 15 years worth of expansion, it’s never happened in US history and it’s never happened in world history. If you use real valid proven economic assumptions, we’re back in the trillion dollar range by the end of this century. On top of the $18.5 trillion we already have, on top of a situation where the baby boom generation is now retiring rapidly.

“The truth is, as a country we’re living way beyond our means. The truth is that Washington is kicking the can with a blindfold on, utterly heedless about how we’re going to manage and finance this thing for years to come. I would tell the public that some of the benefits affluent people think they’ve earned on social security are going to be cut.

“Rand Paul is speaking truth to power. He’s saying the Fed is out of control, it’s the heart of our economic problem. Everything else is small and trivial compared to getting these Keynesian money-printers at the Fed out of the Eccles building.

“That’s the cover story [that the Fed is preventing economic disaster], that’s the rationalization for all of the crazy money printing.

“I think it’s time to get back to sound money, fiscal rectitude, free markets, and small government…

“We [the US] are kind of the cleanest dirty sheet in the laundry, but that doesn’t mean this can last forever. You have 10,000 people retiring per day in the United States. In other words, we’re getting old fast. When you have $18 trillion of debt plus $80 trillion of unfunded liabilities for Medicare and Social Security, when you have 100 million people who are of working age not working, not in the work force, and only 40 million of them really retired on social security, you have a set of factors at work that are not sustainable. I don’t know whether we can still kick the can for a year or 2.

“How did we get to the point that adult, rational people could believe you could print money without huge [consequences]?

“If you could print money without consequence, with impunity, at the rate we’re doing, for an enormous period of time, then we’ve been all wrong historically.

“When the Fed keeps the interest rate at 0 for 75 months running… It’s a false price. It’s a fraud. It’s a fiscal fraud for the central bank to buy $3 trillion of government debt, essentially monetizing it, buying it with money printed out of thin air, thereby driving the interest rate — it’s under 2% on the 10-year, it’s 30 basis points on the 2-year.

“Then [when the Fed raises rates] what we’re going to see, so to speak, is who’s been swimming naked. In other words, the debt at $18 trillion seems manageable because the average interest rate is 101.8%. That’s not sustainable in the long run. When the interest rates normalize, let’s say an average of 4% or 5%, the cost of carrying the debt will rise by $700 or $800 billion a year, which is as much as social security costs today.

“You put all this together and you have a very perilous scenario.”

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