All right, y'all, welcome to the Scott Horton Show.
I am the Director of the Libertarian Institute, Editorial Director of Antiwar.com, author of the book Fool's Errand, Time to End the War in Afghanistan, and I've recorded more than 5,000 interviews going back to 2003, all of which are available at scotthorton.org.
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The full archive is also available at youtube.com slash scotthortonshow.
All right, you guys, on the line, I've got David Stockman from David Stockman's Contra Corner.
He was a congressman and he was Reagan's budget director until he resigned out of principle against the horrible economics of that administration.
And then, he's a successful Wall Street guy, and now he writes angry things about foreign policy and the shape of the U.S. economy.
He wrote the book The Great Deformation, and a couple about the Trump era, too.
Look him up on Amazon.
Welcome back.
How are you doing, David?
David Stockman Great to be with you.
Any sense?
Howard Glassman I've got to tell you, your articles scare the hell out of me more and better than anybody.
That's why I love them so much.
And those charts, just how bad has the lockdown been for the American economy?
And just what does the near-term future look like, do you think, here?
David Stockman Yeah, you know, you don't like to have to scare yourself or everybody else, but at some point, you've got to face the facts of life squarely, and, you know, without reservation.
And we're in uncharted waters.
This lockdown nation, as I call it, the whole series of quarantines and stay-at-home orders and lockdowns and closures and so forth that were suddenly instituted in March, is the biggest government-imposed catastrophe on the economy in all time, as far as I'm concerned.
And we're going to not bounce out of this like, you know, some bungee jumper.
The GDP was down 33 percent at an annual rate in Q2, and somehow Wall Street and Trump alike think it's all going to bounce back to where it started within a matter of weeks or months.
That isn't going to happen.
Great damage has been done.
Fifty million people have lost their jobs, and there's still 30 million people drawing unemployment benefits right now from either the federal or state programs.
I think two to three million small businesses have already been destroyed.
But beyond that, in an effort to try to compensate or make whole the business sector and the household sector for the devastating impact of the lockdowns, Washington has gone, you know, just plain nuts with these everything bailouts, and the Fed has followed suit with money printing like we've never seen before.
So we're now at a place where the economy is totally dependent upon unsustainable transfer payments, bailouts, free stuff, unemployment benefits that were paying, you know, 75 percent of the beneficiaries more than they earned on the job.
And this is a real mess.
But I think the big number that I'd like to point out to people is that transfer payments, and that's everything, Social Security, Medicare, food stamps, housing, cash assistance, SSI, all the rest of it, was running about $3.2 trillion at an annual rate in the first quarter before the lockdown hit and the everything bailouts were instituted.
You know where we are today?
We're running at a $6.2 trillion annual rate of transfer payments.
You know, it's just, they've doubled overnight, and this is the only thing that has kept the economy, you know, in a semblance of being alive, and this can't be sustained.
So you know, we're in a pickle like never before.
Fiscal policy is just, you know, out of control.
The Fed money printers, you know, are really off the deep end of anything ever imagined before.
We've got Wall Street totally in a speculative blowoff because the Fed, you know, pumped $3 trillion worth of liquidity into the market between March and June.
And so we're going to have, on top of everything else, one of these days, a final blowoff top in the stock market and another big meltdown like we had in 2008 and 2009.
And you put all that on top of an election that is going to be closely fought and contested all the way.
I think there'll be, you know, armies of lawyers on both sides contesting every precinct in some of these swing counties and swing states.
And they may not even have, you know, a presidential outcome when the Electoral College meets in December.
So I would say buckle up, get ready for the storm, because, you know, there's a perfect storm coming from all directions, monetary policy, the economy, the fiscal madness that's underway, and the electoral, the most vicious election campaign and, you know, contested outcome that I think we've had since 1860.
All right.
So I know we had a huge bubble in the market before the COVID ever infected anyone, and you and many other Austrian school types were predicting the end of the current bubble and a new recession.
It's got to come at some point or another.
Trump was afraid of it, too, right?
It was a race to see if he could make it past the election before the bubble popped.
Then the lockdowns came, they popped the bubble for him and just pushed everything all the way down.
Everything, right?
All the small businesses you just named, all that unemployment that you just talked about.
But so then my easiest parallel to try to understand the situation would be to look back to the last crash, where the thing that hurt the most was the bubble in real estate.
And once it became clear that those prices were actually BS and nobody can sell their house at those prices anymore, and that whole thing started coming down, especially in California and Florida and Nevada and a few of the worst places where it's going on, that then that just hollowed out everything because all of these banks held that mortgage debt.
And then all those insurance companies had promised to prop up those banks.
And this whole thing cratered, as John McCain was instructed to say.
And so, if you lock down everything, isn't millions and millions and millions of defaulted mortgages part of that right now?
And doesn't that mean that there's going to be a crash in real estate prices the day after tomorrow or something?
And what's taking so long for that to kick in?
Well, I think you've hit the nail on the head and that's the second shoe that's going to fall.
In other words, we had a debt ridden, debt encumbered economy that was struggling to keep expanding after one hundred and twenty eight months of a business cycle expansion before the lockdown and before the covid hit.
I call it the hand to mouth economy.
Eighty percent of households had no cash savings at all and a mountains of debt.
We didn't learn anything in 2009, a household debt.
And when the crash came last time, you know, it was about 14 trillion.
It was over 16 trillion on the eve of the lockdown.
So people were even deeper in debt than they were before.
The business sector was far worse on the eve of the Great Recession, the so-called financial crisis.
There's about ten and a half trillion of business debt.
There's 16 trillion now.
So they spent the last 10 years burying themselves in debt to buy back their stock and goose their stock price and options and fuel, you know, the mania on Wall Street, but left themselves in a terrible position in terms of leverage and balance sheet conditions.
So all of that was in place.
The lockdown came, economic activity stopped cold like never before.
I mean, when you have a 33 percent annualized decline in GDP, this is way off the charts.
It's four times larger than the decline that occurred in the Great Recession.
It takes you back even to the level of decline that happened in 1930 and 1931.
So the question, then, is that when the lockdown crash of the economy comes smashing into a leveraged economy with 77 trillion of debt, what happens?
The answer is a lot of furniture gets broken, a lot of defaults and delinquencies and delayed payments are going to start happening right now, and they're going to ricochet through this entire debt, you know, riddle system.
Now, you say, why hasn't it hit yet?
Well, in its wisdom, the Congress basically passed a law decreeing that for many borrowers, you know, they didn't have to pay their debt payments for at least four months.
But that's going to expire, and at some point, you know, the whole house of cards is going to come unwound.
You know, 80 percent of renters are not paying their rent in many areas of the country.
Borrowers are not paying their interest because they're, you know, either delinquent or defaulting or because they qualify for this grace period that Congress has decreed.
But this is only kicking the can.
This is only building up the pressure in the system.
And at some point, and I think fairly soon, all of this is going to come unraveled.
So, how do you like that?
Pretty good, right?
You know, just from watching the documentaries about it and reading a bit about it, there's that movie, The Big Short, and all that.
And in that movie, they're waiting for, I think, April of 07.
And they're saying, in April, that's when the mortgages reset, and that's when all the hell to pay will come due.
And I guess that was when Bear Stearns was the first one to go, that kind of thing.
Is there a magic number like that?
Because I thought I had read, I'm not sure if it was something that you had written or not, that it said that there was a certain date in August that was going to really be a make-or-break type of a thing for the mortgage debt.
Well, one of the dates is the congressionally legislated forbearance period.
I think ends sometime this month or at the end of the month.
And if that is not extended, and right now Washington is in a total stalemate, as you know, then the rubber will start to meet the road.
But even if they pass some kind of interim emergency extension, which I think Trump is likely to do in order to save his own election if they come up with something in September, it'll only be a matter of time.
You can't keep, you know, as I said, there's $77 trillion of debt on the economy.
There's $16 trillion on households, $16 trillion on business.
You can't keep deferring payments on that kind of debt without bankrupting, you know, some of the funds and the investors who've loaned all that money.
So I don't know that there's a hard date, but there is an inevitable reckoning that's going to happen and I think is going to have to happen soon.
For instance, we just saw for the numbers reported a couple of days ago that if you take FHA-guaranteed housing, which is really entry-level homeowners, lower- and middle-class homeowners who get the FHA guarantee, the delinquency rate is up to 17 percent in the most recent months and that's almost triple where it was a year ago.
You know, the 17 percent delinquency rate is off the chart and, you know, it's only a matter of time before all of these mortgages default and, you know, Uncle Sam's picking up the tab again since it's all guaranteed by the FHA.
That's just one example.
If you look at commercial real estate, it's in dire shape, particularly the malls, which are empty, and all the malls are leveraged to the hilt.
There's hundreds of billions of dollars worth of debt on the companies that operate the big malls, the regional malls and the strip malls and everything else.
Office real estate's going to be in trouble because work has, you know, been migrated home and may not come back.
You know, so we've got throughout this debt structure tremendous problems.
If you look at the junk market, it's insane what's happened there.
The spreads have been so low that everybody's borrowed and borrowed and borrowed to pay their interest and keep the ball in the air, and at some point, you know, that's going to come crashing down as well.
So all of these areas, commercial real estate, junk debt, household debt, automobile paper, even personal credit, all of these are, you know, serious breakdowns waiting to happen.
Yeah.
You know, so there's this piece in Forbes that says the national debt will surpass $78 trillion by 2028.
Jeez, that's not that long from now.
If you think back how long ago, eight years was, it's not very long.
And so, but is that even possible or the whole thing will fall apart before that, right?
Or not?
Yeah.
Well, I don't know if we'll get to $78 trillion.
I don't know what they're measuring, but I do know that when Trump sauntered into Washington, the national debt was $19.4 trillion.
It's now almost $27 trillion.
You know, I do know at the turn of the century before Bush the Younger and Obama start pumping up, you know, all these programs in the welfare state, the public debt was about $4 trillion.
It's $26 trillion now.
It only took, you know, a fifth of a century to get there.
And at the rate that it's piling up, we're going to be, you know, in uncharted waters before long.
Right now, the debt is already 140% of GDP.
Numbers that, you know, we thought of in terms of Italy and Greece and the other basket cases of Europe.
And here we are in almost a flash at that point.
Well, and so they are going to have to just, what, inflate the currency and buy up all that debt with new money?
Or what are they going to do?
They have to have some kind of plan or not?
Well, it's all ad hoc.
It's all seat of the pants.
They're making it up as they go.
You see, the thing people have to understand is that all economic principles, financial principles of historic validation, let's put it this way, have been abandoned and they're now just making it up as they go along.
There's no such thing as sound money anymore.
There's no such thing as financial discipline, either on Wall Street or at the Federal Reserve.
It's a joke if you even think about fiscal rectitude and the fact that Congress has already enacted $3.5 trillion worth of bailout site on scene since March.
And now they're dickering over whether the next bailout, I call it, you know, everything bailout 5.0, because it'll be the fifth one this year, is going to be the $2.2 trillion that Pelosi says is her minimum bottom line, won't move, or the trillion and a half that Trump and, you know, his people have already conceded to.
I mean, you know, this stuff is crazy.
I mean, it's the work of people who have lost all sense of, you know, financial discipline and financial principles, and they're, you know, flying by the seat of their pants.
And the only thing holding the whole gong show together is the Fed just, you know, goes from one excess to another.
And yesterday, they now said that they're probably never going to raise interest rates because they're going to let inflation run hot and, you know, going to keep interest rates at zero for an indefinite period of time.
Well, you know, money has to have a price.
And when you put interest rates at zero and you hold them there month after month, year after year, you're simply encouraging the greatest amount of malinvestment and speculation and leveraged excess that's imaginable.
And it just cumulates.
It makes for a system that has a, you know, shakier and shakier foundation.
And unless you believe that all the principles that we believed in historically are invalid and that life can run on a printing press at the central bank, then you have to be alarmed about how rapidly, you know, we're, you know, not just drifting, but almost racing into complete financial insanity.
That's where we are.
I mean, you can try to talk about it.
David, from where they're standing, it makes sense, from where they've painted us into this corner, right, is that if they raise interest rates at all, then everybody defaults on everything because there's so much debt already.
Even the national, if interest rates were raised by just a few points, the interest payments on the national debt would be the entire, you know, equal the entire revenue that they take in in taxation in the year, right?
Yeah.
Well, I mean, you're exactly right.
They've painted themselves into an impossible deep corner.
But you know, there's an old saying that if you're in a very deep hole, the first thing to do is stop digging, okay, and these people can't, you know, they can't stop digging for a minute.
Hillary Clinton said, when you're in a hole, the first thing you got to do is grab a shovel and start digging your way out.
Yeah.
Well, I mean, stop digging deeper, you know, that would be the first thing, you know, set down your shovels, don't keep digging.
But the Fed is making up one insane excuse after another to buy, you know, at some points during the spring, they were actually printing, if you can imagine this, $100 billion of new money a day.
Let me just repeat that, $100 billion a day.
I mean, this is complete insanity.
It's the only thing that has kept this stock market bubble alive.
But it obviously can't be sustained, or, you know, if it can be sustained, then we might as well throw in the towel and everybody can stop working and just let the Fed print money and drop it out of the sky to everybody and you pick it up once a week and nobody has to work.
I mean, this is craziness what they're up to.
All right.
Well, everybody, that is David Stockman, and it's worth it to subscribe at David Stockman's ContraCorner.com.
Thanks very much, Dave.
Really appreciate it.
Great.
Great to be with you, Scott.
The Scott Horton Show, Antiwar Radio, can be heard on KPFK 90.7 FM in LA, APSradio.com, Antiwar.com, ScottHorton.org, and LibertarianInstitute.org.
