Stockman: US Is Facing Another Recession (Video)

With typical incisiveness, David Stockman laid out for Bloomberg the precariousness of the US economy. The former White House Budget Director called out the Republicans for their failure to do anything about the runaway budget deficit. He expects the government to do what it always does: blink in the eleventh hour when faced with a government shutdown. The Bloomberg host often tries to soften Stockman’s statements, but Stockman picks the issues right back up and paints a sobering picture of American economic instability.

Follow along with the transcript below:

David Stockman: The balance sheet of the Federal Reserve then [in 1965] was 30 million. It’s now 4 and a half trillion, up 150 times. The economy’s up maybe 30 times. We’re in a world that didn’t exist then, and it’s pretty precarious.

Betty Liu: [Mitch McConnell says he’s not going to let the government shut down again. Do you believe him?]

DS: Yeah, he never has, because when push comes to shove, he clutches. He is unwilling to face this fiscal monster. They made a huge mistake last time when after two or three weeks, they capitulated. It’s now clear to everyone the Republicans don’t have the will to do anything about the deficit. I don’t believe that after five years of so-called recovery the idea of a 500 billion deficit is progress. It’s not progress. It’s just getting in harm’s way because we haven’t abolished the business cycle. Sooner or later there will be a recession. Sooner or later we’ll be back into the trillion-dollar—

BL: As soon as this year, David?

DS: I think that we’re in a perilous place. The market is putting in a top, the bottom is falling out of the economy, the Keynesian pettifoggers at the Fed are going to be a cacophony chorus trying to explain what’s going on and why they’re making a move or not making a move.

BL: David, let me parse one question part of your statement. You said the economy is falling apart. Where do you see that?

DS: Well, first of all, internationally it’s pretty evident that China is sliding a pretty slippery slope. Japan isn’t recovering. Europe is in constant turmoil. Commodity prices everywhere are collapsing, which is a sign that we have deflation worldwide. We haven’t escaped it, we haven’t decoupled. There’s a big story this morning about how the steel industry is getting nailed in the United States because China—

BL: A lot of steel exports.

DS: But it’s a big issue. It’s not just a little sector. In other words, there’s been so much overinvestment in mining and manufacturing worldwide due to financial repression by all the central banks that we now have massive excess capacity. China and the rest of the [emerging markets are] producing all they can in order to pay their debt. That is flooding into the world economy. It’s going to hit us… Our imports are going to rise. The oil industry is obviously the major source of job growth that we’ve had for the last four to five years… It is all the jobs that have been created since 209 are in the five shale states. No new jobs, net, outside of the five shale states. Plus, look what’s happened to the rig count. Since October it’s down 43 percent. This isn’t a miner thing. This is an overnight collapse that is going to ricochet in many directions.

BL: [There has been a litany of bad news. In April, Medicare payments are being cut. In May, the Highway Trust Fund will run out of money. In June, the Export-Import Bank may or may not have its charter renewed. In October, the government runs out of money. What do we do about that?]

DS: First of all, the Export-Import Bank is a crony capitalist boondoggle. They ought to let it expire for crying out loud. I was trying to do that back in 1981. If GE and Boeing can’t finance their own exports, then shame on them for crying out loud. All of the money goes to about four or five big companies. Everybody knows that. That’s phony… The Highway Trust Fund. We’ve been expiring on the Highway Trust Fund every few months for the past couple years. They’ll find some way to put a rider on an appropriations bill and the Highway Trust Fund will live on. The thing is, if they believe we need more highway investment, raise the gas tax. Man up here, and if you want to spend more, raise the gas tax. If you don’t, reduce the program. It’s that simple. The debt ceiling— they ought to face it down because we have budget momentum that’s out of control. They won’t. They’ll come to the eleventh hour, somebody will blink, and they’ll extend it. It isn’t necessary because the Treasury does have the power to allocate spending. We are not ever going to fail to pay our interest, we’re going to fail to pay Social Security.

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