David Stockman is back on the show to talk about his new book, The Undrainable Swamp and why he thinks Donald Trump is not the answer to the swamp problem America is facing. He also talks about why he doesn t think Donald Trump s economic policies are good for the economy and the middle class, and why we should be worried about what's going on in the financial markets and the stock market. David Stockman's book is a must-read for anyone who doesn't already have a good grip on the truth about what happened in 2008 and why it's time to wake up to the fact that Donald Trump isn't going to be the fixer for America's economic problems, and that it's going to take a lot more than a single president to fix the economy. He's also the author of three best-selling books: The Triumph of Politics, The Great Deformation: The Corruption of Politics in America, and Why the Reagan Revolution Failed. And his 2016 book, Trumped a Nation on the Brink of Ruin: And How to Bring It Back: The Myth of the Swamp in the Fantasy of MAGA, That's 2019. And now his recent book, Peak Drum, is out in paperback and available for pre-order on Amazon. If you don't have a Kindle device, you can get a copy of the book on Amazon for free, or you can buy a copy on Audible for $99.99, or use the Audible membership trial for a limited edition edition edition of The Triumph Of Politics: What's on the Real Deal? or Kindle Fire HDX, which includes a Kindle Fire, and a hardcover copy of The New York Times paperback edition for 99 pages, or a hardback copy for 99 bucks. $99, and an Audible Audible, and Audible QRP reader edition for 49 pages, plus Audible Prime membership. Kindle Freebie, Audible is also available for 99 euros. You can get the Kindle Fire and Kindle Fire Pro, or Audible Pro, and Kindle Pro for 49 bucks, and $99 paperback Projekt Pro Projex Pro, QRP, and Aptavio Projecor ProjECOR Pro, which gets you a copy for 49 tracks, plus a lifetime of the Kindle Pro, Aptiv Pro, Projectors Pro, Geeves, and Caff and Tribemper Pro, all for $49.99.
00:00:01.000I'm very excited to have David Stockman back as my guest on the show.
00:00:05.000And I think the last time I had him on, I described him initially as a nemesis of mine back in the 1980s when he was Ronald Reagan's budget director.
00:00:16.000And I blamed him for dismantling a lot of the environmental infrastructure that And cutting the budget, many, many social programs that were sacred cows to my generation of liberals.
00:00:31.000And our views on most issues today have coalesced in a way that I'm very happy about because David is an extraordinarily eloquent articulator and leader of people who want to bring sanity back to government.
00:00:51.000I'll tell you a few biographical facts about him.
00:00:56.000He graduated from Michigan State University, attended the Harvard Divinity School, and then went to Washington as a congressional aide in 1970.
00:01:06.000David was elected as Michigan congressman in 76 and joined the Reagan White House in 1981, serving as budget director.
00:01:15.000He was one of the key architects of the Reagan Revolution.
00:01:19.000Plan to reduce taxes, cut spending, and shrink the role of government.
00:01:24.000He joined Solomon Brothers in 1985, later became one of the early partners of Blackstone Group.
00:01:32.000During nearly two decades of Blackstone and a firm he founded Heartland Industrial Partners, Solomon was a private equity investor.
00:01:41.000He is the author of three best-selling books, The Triumph of Politics, The Great Deformation was the corruption of capitalism in America.
00:01:50.000The triumph of politics, incidentally, is followed by the subheading, Why the Reagan Revolution Failed.
00:01:57.000And then his 2016 book, Trumped a Nation on the Brink of Ruin and How to Bring It Back.
00:02:04.000And now his recent book, Peak Drum, The Undrainable Swamp in the Fantasy of MAGA, that's 2019, is currently a publisher of a daily blog called Contra Corner, which is a blog, one of the few blogs that I read faithfully.
00:02:19.000One is because it's brilliant, but also it's beautifully written.
00:02:25.000David writes like a poet, and he's very, very fun to read.
00:02:30.000And it's described as the place where mainstream delusions in Kent about the welfare state, the bailout state, bubble finance, and beltway banditry are rift, refuted, and rebuked.
00:02:42.000I would describe the principal nexus for where our views have coalesced are the abhorrence that both of us share for corporate I think?
00:03:12.000And you explode a lot of the claims that President Trump makes about having brought prosperity and jobs to our country.
00:03:24.000It's great to be back on the podcast with you.
00:03:28.000It's interesting that we've all come a long ways in the 40 years Since the early 1980s and the issues that you were citing then.
00:03:40.000And you were kind enough now, you know, to write a preface for my book, which we're going to talk about today, Trump's War on Capitalism.
00:03:50.000And the other strong endorsement I got for the book was from Ron Paul.
00:03:54.000So I think what it's telling us is there is a uniparty in Washington where both of the traditional political parties have kind of melded together in one big blob that likes to have forever wars everywhere, that really doesn't care that much about the public debt and the way we manage our fiscal affairs,
00:04:16.000that's happy to have the Fed Grant enormous amounts of money, which basically has been a boon to Wall Street in the 1%, but has done very little.
00:04:27.000He's harmed the Main Street economy and was happy to shut down the whole US economy in the spring of 2020 on the basis of some very bad advice from Dr.
00:04:39.000Fauci and other government bureaucrats.
00:04:46.000Trump sounded like he was going to be You know, the guy who rode into town, the outsider, the non-politician was going to drain the swamp.
00:04:55.000But what I'm trying to say in my book, and really more or less give a wake-up call, especially to Republicans and MAGA supporters, is that he didn't drain the swamp at all.
00:05:09.000He actually filled it deeper than ever before.
00:05:12.000And so therefore, we had a four-year period In which the budget got totally out of control.
00:05:19.000The Fed was encouraged by Trump to print even more money, push interest rates even lower, inflate the bubble in the financial markets even greater.
00:05:33.000It had nothing to do with what he was doing.
00:05:36.000And then finally brought the whole thing to a crash-landing With the totally counterproductive and wrong pandemic and COVID lockdown policies in 2020.
00:05:50.000But I do think the facts are important because I think a lot of Republicans, conservatives that I'm trying to reach and say he's not the answer to what you know to be wrong with America.
00:06:32.000If you take all the presidencies, going back to Harry Truman, the average growth rate during the period that whole era, half a century, up through 2016, the average economic growth rate, real growth rate, was about 3.1%.
00:06:48.000During Trump's period, it was 1.5%, half of Of the historic norm over that long period of time, 11 different presidents, nine business cycles, crises, wars, every other thing, but the norm was double what the economy produced in Trump's four years.
00:07:09.000If we look at some other measures, you know, I think it's even more dramatic.
00:07:15.000I think, ultimately, we care about the Main Street economy, where the middle class is going or not going.
00:07:24.000A good measure of that is real GDP per capita.
00:07:29.000And the fact is, it grew less than 1% per year during Trump's four years.
00:07:36.000Which was not even 40% of the post-war average 2.5.
00:07:42.000And then finally he bragged a lot about all the jobs he created.
00:07:46.000The facts are when Trump was sworn in in January 2017, there were 145.2 million non-farm jobs, you know, the kind that are reported once a month by the BLS. 145.2 million jobs when he left.
00:08:22.000We have a huge growing problem with our warfare state, our debt, A Washington that is run by a uniparty that's undermining the middle class and Main Street living standards.
00:09:39.000And he committed, among all the other errors that we've talked about here, the unpardonable sin of shutting down the economy in an unconstitutional, abrupt, capricious way on the basis of bad advice that he should have been able to see through in March and April of 2020.
00:10:03.000The pandemic policy, the lockdowns, the huge COVID policy mistakes disqualify him from another term in the Oval Office.
00:10:17.000There are a lot more, but those are a few.
00:10:19.000I mean, one of the things that you point out is that the growth that did occur during the Trump years was mainly government spending.
00:10:27.000It was the $2 trillion of extra cash that was printed, the Operation Warp Speed and the CARE and the CARES Act and all of these government spending programs to keep the country alive during the lockdowns, and that actually During his term, it's the first time in American history, or at least modern history since the Great Depression, that the private market payrolls have shrunk.
00:10:55.000You know, it had never happened before.
00:10:58.000And, you know, I think it's important to understand that if we don't get jobs growing again, we're not going to get the middle class lifted off from the morass that it's in today.
00:11:12.000And you can't get jobs growing again unless we have more workers and more investment and more productivity.
00:11:20.000And of course, Trump's policy was to keep potential workers out of the country by building a wall in Mexico when the problem could be solved very easily.
00:11:30.000With an orderly, organized guest worker program, rather than investment that we desperately needed in the private sector to fuel productivity and to fuel expansion of capacity, all the available funds were absorbed by these enormous deficits that were run on his watch, including the big tax cuts Which weren't paid for.
00:11:55.000It was $1.7 trillion of revenue loss from the corporate tax cut and the parallel measures for individual taxpayers.
00:12:05.000But if we look at actual investment, it actually slowed down.
00:12:10.000The growth rate of investment slowed down in the five years after the tax cut rather than before.
00:12:17.000I've said all along, tax cuts are good, but they have to be earned.
00:13:26.000The homeland isn't under any kind of serious peril.
00:13:31.000And so we didn't need a $600 billion defense budget.
00:13:35.000We could have cut it by 50% back to what I call the Eisenhower minimum.
00:13:41.000In other words, if you look at what The great President Eisenhower, who was the only great general ever to, you know, lead the country in the last century, he said that the budget in 1961 was already big enough in today, it was 60 billion in those dollars,
00:13:58.000and today, today's money would be 400 billion, and that would be more than enough because back then, The Soviet Union was still at the peak of its industrial power, and it had a lot of pretty nasty weapons pointed at us.
00:14:27.000He raised it to $750 billion, 25%, on the rather silly theory that he was a tough guy and that he could negotiate with the rest of the world, but he needed a bigger stick.
00:14:39.000So he invited the generals to come up with all the spending schemes that they could imagine.
00:14:56.000So a point that I'm getting at is that if we're going to get the private economy moving again, if we're going to get some growth in middle class and Main Street economic prosperity, then we're going to have to get this massive treasury borrowing then we're going to have to get this massive treasury borrowing level out of the
00:15:17.000I want to give just one final number on that that I think, because raising the public debt sounds like an old-fashioned Republican kind of issue, something that Barry Goldwater talked about back in the 60s and so forth, but it's not really anymore because it's gotten so big.
00:15:38.000Trump went into office with a $20 trillion public debt, which was already pretty big, you know.
00:15:47.000310% of GDP. By the time he left office, it was $28 trillion.
00:15:54.000Now, $8 trillion of growth in four years.
00:15:57.000I'm sure it's hard for people to get their arms around.
00:16:13.000In other words, from the beginning of the Republic in 1789 to 205, 216 years, 43 presidents generated the first 8 trillion of public debt.
00:16:25.000Trump did, duplicated, replicated that $8 trillion in four years.
00:16:30.000That's a measure of how things were out of control.
00:16:33.000And all of that cash went into funding of the $6.5 trillion that he put into all these COVID bailouts rather than into the private sector investment we need.
00:16:48.000So that's just one of the many particulars that we go through in the book that I think people really need to understand.
00:16:57.000And David Stockman's new book is Trump's War on Capitalism.
00:17:05.000One is, we're now at a $34 trillion debt that our kids are going to have to be saddled with and pay back, which is going to really impact their lives dramatically.
00:17:19.000What is the relationship of $34 trillion to GDP? Okay, that's a good question, because it is now 120-130% of GDP. And that sounds pretty bad.
00:17:34.000But you see, if the Uniparty in control today continues...
00:17:39.000And they keep all the wars going, and they keep this $900 billion defense budget growing.
00:17:46.000In fact, you know, we've talked before, if you look at everything that goes into national security, including all the foreign aid and the security assistance, the fact that we have a huge veterans budget because we have to pay for all the men and women who become injured or Disabled as a result of these forever unnecessary wars, it's $1.3 trillion.
00:18:11.000The point that we need to get at here is that that huge debt, because of the warfare state and all the other spending we have, is heading towards, and I'm not exaggerating or trying to create some kind of panic notion,
00:18:31.000But it's heading from the $34 trillion we have now to $50 trillion by early in the 2030s, just around the corner, the decade around the corner.
00:18:44.000That would be 150% of GDP. And if we don't fundamentally change direction, not a little bit of change here, a little bit of adjustment there, but a big realignment, reset of what we think we're doing in the world and what we're trying to do to get our economy back on its feet at home, if we don't have a big reset there, we're going to end up with a public debt of $100 billion.
00:19:12.000A hundred trillion, I mean, and, you know, 200% of GDP by the middle of this century.
00:19:19.000So we're on a path that's dangerous, unsustainable, is creating a burden on future generations, our kids and grandkids, that is totally unsustainable, and we won't get there.
00:19:33.000Something will blow up in between, and that's why we have to start Attacking these huge structural deficits.
00:19:42.000This isn't, you know, Republican rhetoric from 40 years ago about deficits, but these massive deficits that we can't afford.
00:19:53.000During Trump's four years, the deficit averaged 9% of GDP. That is a startling number.
00:20:01.000Because the average in the post-war period was 2.5%, and I looked it up the other day, when your uncle John Kennedy was president, the deficit averaged 0.9% of GDP. In other words,
00:20:17.000during the four years of Trump, who supposedly was the Republican, going to curtail all of this excess that allegedly occurred during Obama, the deficit ended up 10 times bigger than it had been in the early 1960s.
00:20:34.000So we're in uncharted water and this has to be addressed.
00:20:39.000And it has to start by bringing the empire home.
00:20:43.000And not a little, you know, chipping away here and there at the defense budget, but we could cut 400, 500 billion out of the defense budget by going back to what I call the Eisenhower minimum in a homeland defense that says, you know, we're not going to have bases all over the world.
00:21:02.000We're not going to be We're good to go.
00:21:44.000It's a tiny fraction of Of their net income and even of the money they put into stock buybacks, but especially all these giant loopholes in the tax system.
00:21:56.000I just looked those numbers up and it turns out that over the next 10 years, and this is not a number that's coming from me or somebody on the right, so to speak.
00:22:09.000These are U.S. Treasury numbers from Janet Yellen.
00:22:13.000Janet Yellen's Treasury Department herself, they came out last spring.
00:22:16.000The total revenue loss over the next decade from all of the so-called tax expenditures, I call them loopholes, a lot of them are just crony capitalist giveaways, is $21 trillion.
00:22:39.000It's as big as the entire projected deficit over the same 10-year period according to CBO. Look at it another way.
00:22:51.000If we had what you would call a very Flattish tax system, where we had the rates that we have today, they're not too low in my judgment, 21% on the corporate and the taxes we have from 37% on down on individuals,
00:23:10.000but if we had the entire base available at those modest rates, We would be generating about 55-56 trillion of revenue over the next decade, just from the income tax and the corporate tax, and that would go a long way to filling the hole in the deficit.
00:23:33.000But we're actually, according to CBO, and this is the part that is startling, We're actually only going to collect $35 trillion from the income tax on corporations and individuals.
00:23:47.000In other words, not $56 trillion, but $35 trillion.
00:23:51.000The difference, that's almost 38% of what would be the full tax base is going to loopholes and tax expenditures and preferences and Subsidies for black energy, green energy, purple energy, and all kinds of other things in between.
00:24:10.000So what I'm getting at here is that if we were willing to take on What I call the weak claims on the budget, rather than just the weak clients, you know, poor people and poverty programs, but the weak claims, which is really what I was talking about way back in 1981, and got, you know, drowned out again by the politics of the beltway.
00:24:36.000But if we took on the weak claims at defense, And all of these loopholes, and all of these subsidies like the Ex-Im Bank, and all of these big subsidies that go to, you know, wealthy farmers and all the rest of it,
00:24:51.000we could dramatically reduce the size of the structural deficit, stop the public debt from continuing to grow, And free the resources that would be available for investment in productivity and in new capacity and new jobs and getting our economy back on track for the middle class.
00:25:17.000I mean, going back to the last discussion, so people can put this in context, we now have a $34 trillion national debt, and the annual costs of serving that debt are approximately equivalent to our entire military budget.
00:25:37.000You know, if we double that debt, we go to 50, you know, basically our entire budget is going to be at some point servicing the debt with nothing left over for any social programs, any military programs, nothing.
00:25:56.000In fact, without sounding too alarmist, it's actually worse because we have to bring in the other factor here that's enabled all this.
00:26:06.000I mean, politicians want to be fiscally irresponsible if they can because that's the easier route, obviously.
00:26:13.000But the Fed in the last two or three decades has enabled This by pushing interest rates so low that the cost of servicing this ballooning public debt that we've been talking about was pushed to rock bottom.
00:26:29.000Even like two or three years ago when the debt was well over $20 trillion during the Trump period, the servicing cost of the interest cost was $350 billion a year.
00:26:40.000But now what's happening is inflation got out of control.
00:26:46.000The Fed had finally belatedly needed to shut down its printing press.
00:26:52.000It was no longer buying in all the public debt.
00:26:56.000We call it monetizing and therefore financing the government deficit on the cheap.
00:27:03.000And as a result of that, interest rates are way the heck up.
00:27:07.000You might remember two years ago, the key government interest rate on the 10-year bond or note It was down to 1.3%.
00:27:16.000And of course, today it's over 4%, and it's probably going to go higher.
00:27:21.000Now, if the debt goes from $34 trillion to $50, and the average interest rate, which is still because it's embedded in the portfolio, it'll take time to turn over, It goes from 2% to 4% or 5%,
00:27:36.000then we're going to end up paying, and this is a startling number, but it's the reality that we're facing, we're going to end up paying not $300 billion a year in interest on the public debt, but $3 trillion.
00:27:55.000At $50 trillion of debt at a reasonable interest rate, we'll be paying $2 trillion to $3 trillion of interest, three times more than Social Security, far more than even this quoted defense budget.
00:28:13.000That is the danger if we don't finally face up to this monster.
00:28:18.000That was exacerbated by Trump, and that's a lot of data for that in my book, but it really is the product of 30 or 40 years of uniparty governance, where they basically pretended that the public debt didn't matter, future generations would, you know, have to But it wouldn't be that expensive because the Fed would be able to finance it on the cheap by keeping interest rates at rock bottom.
00:29:07.000They're playing games down there now, trying to figure out how they can add $100 billion in money for the Ukraine and for building the wall, which isn't the solution to the border problem and all the rest that we don't have.
00:29:22.000And they're ignoring the big elephant in the room, which is this ballooning public debt.
00:29:30.000I want to go back again to talk about how President Trump, and this is embedded throughout your book, was rolled repeatedly by his bureaucrats.
00:29:39.000You know, he appointed a bunch of swamp creatures like John Bolton, who is probably the single greatest advocate of aggressive, bellicose military country and pharmaceutical companies.
00:29:56.000Lobbyists like Scott Gottlieb to run FDA, but throughout the bureaucracy.
00:30:01.000And then he was unable to stand up to his own bureaucrats.
00:30:05.000And I, you know, it made me recall this story of my uncle during the Cuban crisis in the XCOM committee that met at the White House.
00:30:15.000My father was part of it, but they were the gray beards of the intelligence apparatus in the military, the Joint Chiefs of Staff, etc., people like Dean Acheson, who were the Right.
00:30:25.000These kind of deified diplomats in American history who had been at Yalta and Casablanca.
00:30:32.000They were at the creation, as it was called.
00:30:36.000So they were all in the room, and on the first day...
00:30:43.000We now know that if they had invaded, it would have been the end of the world, because there were 64 nuclear missile sites there, and strangely, insanely, the Russians had given each of the missile crew commanders Oh.
00:31:01.000Independent authorization to launch if they felt themselves in danger.
00:31:05.000So you have to assume at least one of them would have launched.
00:31:35.000He was able to take advice from people who were the experts to go deep.
00:31:43.000You know, he asked to see the aerial photographs.
00:31:45.000He questioned people like, You know, if those are Russian gun crews, we kill Russians, isn't Khrushchev going to have to come into Berlin?
00:31:53.000And really question them on a granular level about each decision.
00:31:59.000And, you know, I think one of the problems, I think Trump was well-intentioned when he went in to try to drain the swamp, but I don't think he had the capacity to stand up to his bureaucrats.
00:32:16.000But when his bureaucrats pushed back on him, he caved in.
00:32:20.000Yeah, there's so much evidence for that.
00:32:22.000On March 11, 2020, he wrote a whole, he put out a whole big tweet about, well, you know, we have every year we have the flu season and some years bad, some years good.
00:32:33.000Sometimes 30, 40,000 people unfortunately die from it.
00:32:40.000No talk about lockdowns, no talk about a bubonic plague about ready to wipe out the nation.
00:32:46.000Four days later, he declared an emergency, gave a speech calling for, you know, the two weeks to flatten the curve, unleash Dr.
00:32:57.000Fauci and that whole gang of malpracticing doctors, and then set back and let it happen.
00:33:03.000And not only let it happen, but allowed the White House to be used day after day as a bully pulpit.
00:33:09.000You remember the Coronavirus Task Force every day had a reality TV show.
00:33:15.000And they scared the living daylights out of the American public.
00:33:18.000So between the state bureaucracies ordering everything to be shut down and the public being scared to death by this daily show, the whole economy went into an abrupt halt.
00:33:32.000I have some data in the book that people need to remember how bad it is and why it should never happen again.
00:33:39.000In the second quarter of 2020, when the lockdowns really hit in April, May, and so forth, real GDP declined by 34% at an annual rate in one quarter.
00:34:49.000In the month of April 2020, Employment, and this is the index of hours, so it's not even counting halftime jobs and 20 hours at, you know, burger flipping somewhere.
00:35:03.000The index of hours declined by 58% in one month.
00:35:09.000From where it had been in February 2020.
00:36:22.000Troops in Syria, and now we're in the middle of this fight.
00:36:26.000Yeah, the point is he won't be able to implement even some of the better ideas he has because, you know, as you said, you put John Bolton in as national security advisor.
00:36:40.000That is the very opposite of America first.
00:36:54.000He then brought in to head the CIA Mike Pompeo, who is the most bloodthirsty, you know, unreformed cold warrior that I've seen in a long time.
00:37:06.000And then he became Secretary of State.
00:37:08.000So if you have Bolton and Pompeo running your foreign policy, what does that have to do even with this vague notion of America first?
00:37:18.000And it's the very opposite of what I think the right policy is, bringing the empire home, shutting, closing all these bases, bringing our forces back to the homeland, and running a national security policy on an Eisenhower ration, fiscal ration, That would be half of what we're spending today.
00:37:45.000And this is, you know, like 60,000 feet.
00:37:49.000If we survive what's happening now in the Mideast, which I think all of us are worried about, you know, maybe sleepwalking into a nuclear war.
00:38:00.000But the neocons have already said that Taiwan is next.
00:38:41.000Chiang Kai-shek, the leader of the Nationalists, retreated his army in tatters to the offshore island of Taiwan.
00:38:49.000And at the time, some of the people who loved war, let's just call it the warfare state, the war party, said, let's rally behind Chiang Kai-shek, draw a line in the Taiwan Strait, urge him to form an independent country.
00:39:08.000And then we'll keep him secure from whatever the mainland might do.
00:39:16.000Taiwan had been settled by Chinese Han, Han Chinese, three or four hundred years earlier.
00:39:24.000It was thoroughly Chinese by the 20th century.
00:39:27.000Japan came in in the early, you know, in 1895, Occupied the island and finally was liberated by the Chinese in World War II with American help in 1945.
00:39:43.000So the idea that this is a separate country, that we ought to be putting the world on the brink of nuclear war because Taiwan and China need to be kept separate, I think is totally wrong.
00:39:57.000And we, you know, we have this thing called strategic ambiguity.
00:40:13.000We ought to say, and I know this is probably a little bit controversial, but let's face the fact that At the end of the day, the Taiwanese economy would thrive probably as well as the Shanghai economy is today, which has been booming.
00:40:29.000And if they can find some way to accommodate themselves just like they did in Hong Kong, That's probably where the world is going.
00:40:58.000Let's normalize and provide a pathway For Taiwan and China to reconcile one way or another.
00:41:06.000Because it's not in our national security interest to, you know, expend massive amounts of blood treasure and risk nuclear war over an issue which is, at the end of the day, ancient history.
00:41:21.000And what is the Chinese economy like right now?
00:41:25.000Well, the Chinese economy looks prosperous and it sure as hell is a lot stronger and bigger and more productive than it was in the 1970s when Mao was creating famines throughout the countryside.
00:41:41.000But I still think it's a house of cards because it was built on a massive eruption of debt that has no parallel in human history.
00:42:02.000In other words, over the last three decades, they've essentially increased the public and private debt, and it's all over the place there because their accounting isn't transparent.
00:42:15.000Some of it's the so-called local province-level debt and so forth.
00:42:20.000Some of it's on the companies, some of it's on the central state.
00:42:24.000But it's $50 trillion, so it's up 100-fold.
00:42:29.000And from that, they built a massive new economy.
00:42:34.000We built airports and railways and highways and public facilities of every type from one area of the country to another.
00:42:44.000They built massive apartment complexes everywhere.
00:42:47.000But if you look at it today, you see there's huge amounts of factories that are idle.
00:42:53.000There are literally 60-70 million Apartment units that are empty that were basically built on speculation because the whole thing was one big speculative Ponzi.
00:43:07.000So I think the Chinese economy is heading into a period of reckoning.
00:43:13.000I don't think it's going to disappear down a black hole.
00:43:17.000But I think the whole miracle is over because it was based on unsustainable debt, spending, and investment that wasn't really profitable or cost-effective.
00:43:30.000So the reason I mentioned this is they may have a $16 trillion economy, as it's Computed up, but they are not a military threat to the United States because just like we learned after the 60s and 70s, the Soviet Union was a house of cards because communism doesn't work at the end of the day.
00:43:57.000Overcentralization, government dominance doesn't work.
00:44:00.000The same thing is true in China today.
00:44:03.000So let's allow this Ponzi to unwind on its own.
00:44:09.000And not get all this paranoia going about the Chinese threat and the idea that they're going to be landing on the shores of California any day now.
00:44:27.000The two that they have are 1980s vintage.
00:44:30.000They were rust buckets bought from the old Soviet Union.
00:44:34.000So we need to get a little bit more rational, a little bit calmer about what we're dealing with over there and recognize that if we really believe in, you know, I do, in capitalism and free markets and limited government and constitutional limits on what the state can do, Then look at China and you realize it's a failed project.
00:44:59.000At the end of the day, what they're doing today just isn't going to work and they're not any kind of serious long-term military national security threat to America.
00:45:11.000So we don't need this $900 billion defense budget monster because of the China threat.
00:45:19.000But what does the military industrial complex do?
00:45:22.000They just invent one new threat after the other.
00:45:28.000They never stop inventing them because here's the reason why this defense budget needs to be butchered, you know, really rolled back, cut back.
00:45:40.000There's so much extra money, when you think about it, in $900 billion of spending that there is tens of billions going to all these think tanks and all of these NGOs and all of these quasi-lobbies that are all in the business of buttering their own bread, of making the case for a huge defense budget.
00:46:03.000And so I called it once, it's like a self-licking ice cream cone.
00:46:27.000It's very hard, you know, to answer that question, because when you have a system that is controlled directly and indirectly from the center, as regimented as China is, I mean, they tell the central bank to print the money, the money is printed, is handed out to all these private companies, they build factories, apartment buildings, railroads, airports, and so forth.
00:46:48.000So I think it's very hard to say, but their debt, The $50 trillion that I'm talking about is more than, you know, it's 400% of GDP, even a higher ratio than we have.
00:47:02.000Now, people think, when they think of debt, we have to remember, it's not just the public sector or federal debt that's important here, the $34 billion.
00:47:13.000But the Fed has made it so easy to borrow and has created so much speculation on Wall Street.
00:47:20.000That all sectors of the economy, including households, have loaded up on debt like never before.
00:47:26.000So we have now, this is a startling number, $96 trillion of public and private debt in the United States on households, businesses, government, and finance.
00:47:39.000Now, that is 360% of GDP. And by the way, in 1970, when we started down the road of all this Fed accommodation of easy money and debt, the ratio was 150%.
00:47:59.000In other words, the debt was 150% of GDP. It had been 150% for a century.
00:48:06.000We had had a lot of prosperity, you know, in the previous century, going back to 1870.
00:48:12.000But, and this is kind of the big issue that is, you know, the elephant in the room that's not being addressed.
00:48:19.000Essentially, since 1970, the American economy has gone through a giant LBO, leveraged bio, and we took the debt from $155 trillion and 150% of GDP to $96 trillion and 360% of GDP. These are all big numbers, I know, but let's just ask this question.
00:48:46.000Had we stayed on the straight and narrow with a modest leverage ratio in our economy, the same one we had when your uncle was president, when the great prosperity of the middle class In the 50s and 60s and early 70s was very evident to everyone.
00:49:06.000Had we stayed on that path, which was one and a half times leverage or 150% debt to GDP, had we stayed there today, there would be about 46 trillion of debt in the US economy, public and private, not 96 trillion.
00:49:25.000So what we have It's about $50 trillion of extra debt.
00:49:37.000It's in, you know, the Fannie Mae's, the Freddie Mac's, all of the quasi-government agencies.
00:49:44.000We just have so damn much debt that as interest rates now go up necessarily to try to, you know, rebalance the economy, every 1% of interest It raises the debt service cost in the economy, every 1%, by $1 trillion.
00:50:04.000And that is $1 trillion that doesn't go into investment.
00:50:09.000It doesn't go into household budgets or wages.
00:50:12.000It doesn't go into government spending for things that people might support.
00:50:17.000It basically is an increase In the debt service burden of our economy.
00:50:24.000So that's just another sort of metric or measure about why three things have to happen.
00:50:33.000The warfare state has to be dismantled.
00:50:36.000The rogue central bank at the Fed that's printed all this money, made all this easy interest rate, fueled all this speculation, fostered all this debt, has to be drastically curtailed.
00:50:50.000And we need to get the Uniparty out of the dominance that it has today and restore some notion of citizen democracy in the United States.
00:51:03.000Donald Trump isn't going to do that, but I think what we're really going to need is a complete revamp of our electoral system.
00:51:13.000We've got to get money out of politics.
00:51:16.000I'm for public finance of elections, which I'm sure a lot of conservatives have a hard time with.
00:51:22.000But I don't mean just handing out big wads of money.
00:51:32.000And John Anderson, who I worked for, and Stuart Udall, Democrat had a bipartisan plan to match small contributions, let's say up to $250 today, from millions of people, one-to-one with a government trust fund set of money.
00:51:50.000And then you ban corporate contributions, you ban Big contributions above 250.
00:51:59.000You get all the interest group and lobby money out of the system and try to restore what I would call citizen governance in America rather than what we have today, which is the permanent political class that's so deeply burrowed in in the beltway in Washington.
00:52:22.000Yeah, I mean, that obviously is the solution we should be striving for.
00:52:28.000The problem is, the big problem is the Supreme Court decision in 2010 and Citizens United that equates political contributions with, gives, endows them with First Amendment protections as free speech, which no other country in the world looks at, you know, money, which is just legalized bribery as speech.
00:52:51.000I agree, but you know, that's why it calls attention to the fact that this is hard.
00:52:56.000We need a constitutional amendment to liberate our election system, our political system, from the money and interest group and crony capitalist politics that dominate today.
00:53:11.000To overcome that Citizens United decision, there's no way around it.
00:53:18.000And so I say, let's try to figure out what needs to go in that amendment to fundamentally, you know, reshape and reset government in America, put it in that amendment, and then move it through the system, because I think the public is ready for it.
00:54:02.000It is the profit center on Wall Street.
00:54:05.000I mean, the Fed is enabling the worst behavior and You have an entire sector of the economy that is now, instead of looking at production figures and demand figures, they're looking at what the Fed is going to do next.
00:54:22.000You know, as I said, the Fed has become a total captive of Wall Street.
00:54:28.000Pricing in the stock market or the financial asset market generally is based on the last wink and nod From when Paul has his presser after a monthly meeting, and they're trying to figure out what he's saying between the lines, and that's what's driving the market.
00:54:52.000Yeah, but to go back, I know it's a tall order.
00:54:56.000It's sort of like the mice who decide they'd be safe if they put a bell on the cat's neck.
00:55:03.000And the problem is they never figured out how to do it.
00:55:06.000But there is got to be a way to do a constitutional amendment.
00:55:09.000And while you're at it, not only do you override Citizen United, not only do you make public finance, you know, legal and constitutional, but I would put term limits on public office as well.
00:55:23.000Six years for the House, six years for the Senate, one six-year term for president.
00:55:31.000And I want to tell you, I was an incumbent, I know.
00:55:34.000And the minute we got elected every two years, we'd hold a meeting.
00:55:37.000The morning after to decide how to raise money for the next election.
00:55:41.000And as long as that's what's driving the system, we're going to end up with uniparty dominance, which is basically incumbent self-perpetuation.
00:55:53.000After all, what did the Republican Party under McConnell stand for today that's that much different than the Democratic Party under, you know, Schumer from New York?
00:56:04.000The answer is they're both machines to raise money to elect incumbents.
00:56:09.000Once you get beyond that, it's hard to know why they're there.
00:56:13.000So we need to deal with the incumbency system.
00:56:16.000We need to deal with money in politics.
00:56:18.000We need to deal with With this massive dominance of interest groups and capture of government agencies, including the Federal Reserve, by self-benefiting interest groups, in this case Wall Street.
00:56:33.000Yeah, I need to be convinced on term limits because I don't think that that's the...
00:56:59.000Let me ask about BRICS. What do you see happening with BRICS? How big a threat is it to the US economy and to our economic model?
00:57:10.000By the way, I share all of your worries about the Fed.
00:57:16.000The Fed is also what funds the war machine.
00:57:20.000Fiat currency was invented to fund wars, and a war machine would stop overnight.
00:57:26.000If the Fed wasn't there to fund it, the Fed also, the policies are designed to move wealth upward, increase these giant disparities of wealth that completely destabilize our democracy, and to do a lot of everything that comes out of the Fed is pretty bad, all of the ultimate impacts of it.
00:57:46.000And we have to figure out how to restore sovereignty over the Fed to the public and how to ensure transparency.
00:57:54.000There's no transparency and the kind of voodoo that these Merlins on Wall Street cook up and pretend that it's actual economic science, but other than just a formula for shifting wealth upward.
00:58:42.000But if you look at the ECB or the Bank of England, or if you look at the People's Bank of China, or especially the Central Bank of Japan, I mean, they have gone nuts printing money and monetizing the debt.
00:58:55.000So I don't think in the near term there is an issue.
00:59:01.000of the reserve currency because we really don't have a reserve currency.
00:59:05.000I know they all call that and that's the conventional wisdom but a reserve currency actually worked At a time when there was a link to gold.
00:59:16.000And in the 30s, the British pound was a reserve currency, so people didn't want to hold governments, central banks didn't want to hold gold bullion.
00:59:25.000They would hold sterling, and the Bank of England was willing to convert it reliably as promised.
00:59:33.000Then they obviously defaulted on that in 1931.
00:59:40.000They recreated That kind of system with the dollar at Bretton Woods in 1944.
00:59:45.000So for a few decades, the dollar was a reserve currency that could be used in lieu of maintaining your reserve assets in gold bullion.
00:59:57.000And then we got into the mid-60s, late 60s, guns and butter with Johnson.
01:00:03.000The Vietnam disaster in our foreign accounts fell apart.
01:00:08.000Nobody wanted all those dollars they were accumulating.
01:00:13.000They couldn't get gold as promised because we closed the gold window with Nixon in 1970.
01:00:19.000And now we've been kind of in a world of floating currencies that are a dirty float because every central bank is constantly intervening to try to peg their currency in a way that's favorable, you know, to their export industries or the domestic economy. to their export industries or the domestic economy.
01:00:37.000So I'm not worried about reserve currency.
01:00:41.000I'm worried about the fact that the Fed, as the leader of the gang of central banks, Across the planet is leading a race to the bottom by printing all this money and essentially forcing everybody else one way or another to do the same thing.
01:01:01.000Because if Japan doesn't print or the ECB doesn't print, their exchange rates will go way up.
01:01:08.000Local export industries will start screaming and the politicians will be all over the central bank and it won't work.
01:01:18.000So what we need to do is start at the heart, at the seat of the problem.
01:01:24.000The seat of the problem is the Fed as the leading central bank of the world.
01:01:29.000And we need to, this is another whole discussion I think for another day, But the shorthand for it is we need to go back to a more modest central bank like the one that Carter Glass, and a lot of people know the name from Glass-Steagall, that Carter Glass actually designed when he was chairman of the banking committee in 1913.
01:01:54.000In the House and wrote the statute that set up the Federal Reserve in 1914.
01:02:01.000And basically, that remit, that charter said the Fed is to act as a last resort source of liquidity to the banking system at a penalty rate of interest above whatever the market is setting.
01:02:17.000It wasn't in the business of targeting precise inflation or targeting The precise levels of full employment.
01:02:25.000It wasn't in the business of keeping Wall Street happy.
01:02:29.000In fact, the whole Fed was set up in 12 regional banks away from Wall Street because Carter Glass understood the danger of capture.
01:02:41.000We're a century later and we're still discovering the wisdom of Carter Glass.
01:02:47.000But if we went back to a kind of notion, and I've written about this, that put the Fed in a very passive role of only providing liquidity at a penalty cost in a financial crisis, we wouldn't have these problems.
01:03:04.000The market would be pricing Economic growth.
01:03:11.000It would be pricing all of the to and fro and ebb and flow of real economic life on Main Street, not what Jay Powell and his merry band are likely to do at the next meeting.
01:03:25.000We need to get the Fed out of all this activism, out of When the Fed is in the canyons of Wall Street, I say, cheek by jowl with all the traders and all the gamblers and speculators down on Wall Street, It is inevitably captured by all those good folks down there.