David Stockman: The Next President Will Inherit a Recession (Video)
Over the last few weeks, the mainstream has been fixated on the prospect an interest rate hike. Janet Yellen insists the economic fundamentals will support a hike. Pundits keep talking about a “strong economy.” But David Stockman recently appeared on Fox Business with Neil Cavuto and said the next president will inherit a recession.
Cavuto asked Stockman what makes him think it’s going to pop now:
We have been living beyond our means for 30 years. It’s only a matter of time. People said that in 2007. ‘Don’t worry. They’ll muddle through. Remember Goldilocks.’ And then wham, the bottom fell out, the meltdown happened, the panic was on.”
Stockman then provided some economic data to make his case: a recession is upon us.
Cavuto and Stockman went on to discuss the debt crisis in Puerto Rico. Stockman agrees with Peter Schiff that the territory should not get a bailout, but those who took the risk should shoulder the consequences.
That led Stockman to offer a dire warning about the overall level of debt in the US and the seeming lack of concern shown by policymakers:
We’re just drifting, as we have in the past, and sooner or later you’re going to hit the wall.”
Highlights from the interview:
“I think whoever is elected will inherit a recession.”
“I think there is going to be enormous [trade] friction with either Trump or Clinton. It doesn’t matter.”
“We have been living beyond our means for 30 years. It’s only a matter of time [before it pops]. People said that in 2007.’Don’t worry. They’ll muddle through. Remember Goldilocks.’ And then wham, the bottom fell out, the meltdown happened the panic was on.”
“It’s hard to say what the black swan is, but right now, if we look at this economy, inventories are building up. If we look at transportation, for instance, rail traffic is down 10%, trucking traffic is down, manufacturing has been negative for months.”
“The banks do have more capital cushion, but the risk has just been offloaded elsewhere. Right now you have trillions of new high-yield bond funds, trillions of credit funds that are taking on far more risk than is embedded in the yields that people are receiving. So, I think you’ve just moved the risk to outside the banking system – to the non-bank financial system. It’s out there.”
“We have more junk bonds than ever before.”
“Bailing out cities, bailing out states, bailing out Puerto Rico, bailing out Wall Street, bailing out auto companies – the whole thing is wrong because it creates moral hazard. As a result, people take excess risk; they don’t face reality; they live beyond their means; they use accounting trickery…You have to have financial discipline, and the way to destroy financial discipline is with bailouts when people get themselves in big trouble.”
“We have $63 trillion of total debt in this economy. The public sector – county, state, and local – is nearly $25 trillion. And we’re getting old. The Baby Boomers are retiring, 10,000 a day. In another 5 or 10 years we’re going to have a massive increase in the retired population. How do you fund all that? Who’s going to pay the taxes?”
“We’re just drifting, as we have in the past, and sooner or later you’re going to hit the wall.”
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