I just finished reading David Stockman's new book that was published earlier this year, The Great
Deformation - The Corruption of Capitalism in America. Mr. Stockman has provided an outstanding service to his
fellow US citizens by documenting in detail the history and evolution of the US government's economic
policies and the actions of the Federal Reserve from the World War I era to the present day. Mr. Stockman's book
has more than 700 pages of text with no charts, pictures or tables, not including his discussion of his sources and the
index. I invested tens of hours in reading the book in its entirety and analyzing Mr. Stockman's views on how the
US has reached its current financial state. I was already familiar with many aspects of the story Mr. Stockman told.
However, I learned a number of new things, particularly about the roaring 20s and the Great Depression, and
was reminded of many of the details of what has happened to the US during my adult life, from the early 1970s to the present
day.
I recommend that every American that cares
about their financial future read Mr. Stockman's book. If you don't fully appreciate our financial and monetary
history you have no capability to evaluate what is happening today and what is proposed by our "leaders" for
the future. The sound bites we all watch on TV or read in short internet articles don't give us the background
we need to fully evaluate what is happening. This book will explain to you how the US has put itself
on the path to bankruptcy and how bad the situation is today. There is no longer any excuse for any American to say
they don't understand what has happened and is happening today. Mr. Stockman tells the whole story in simple terms
that any intelligent person can understand. Since the book is very long and includes huge amounts of information there
is no easy way to present a synopsis of the book. I have some thoughts that were generated from reading the book
and presented them below. I hope you find them interesting. I believe reading the book can be very
emotional for some people. I experienced anger, frustration and sadness at different times as I read the book.
It is very disheartening to read how our government and central bank have nearly destroyed our nations financial
system and how out-of-control crony capitalism has become. I knew it was bad, it simply didn't appreciate how bad
it has become. This is not an issue between Democrats and Republicans. Both parties have contributed greatly to our
problems. Leaders of both parties have made short term decisions that have had very damaging long term
consequences.
Mr. Stockman explains that the
US is close to reaching "Peak Debt", "not a magical statistical point such as a federal debt ratio of 100 percent
of GDP, but a condition of permanent crisis. From the failed election of 2012 forward, every dollar of additional borrowing
will induce new political and financial pressures while every dollar of spending cuts and tax increases will further impair
the rate of GDP growth. The mainstream media notion that there is a choice between fiscal austerity and fiscal stimulus is
wishful thinking. It does not recognize that owing to the triumph of crony capitalism and printing-press money America
has become a failed state fiscally. Deficits and debt have now reached the point where they are too large and too embedded
in social, economic, and political realities to be resolved". The "fiscal cliff" "is now a permanent fiscal
condition and signals that the fifty-year Keynesian joy ride is over". We will see how far our political leaders
and the Federal Reserve can extend the monetary joy-ride before the overall debt burden brings down the economy.
The WWII Generation and the Baby Boom Generation have created an incredible economic,
fiscal and monetary mess that must be cleaned up in the years ahead. It will be extremely painful for most Americans
when corrective action is taken. Many of our fellow citizens will rebel at the changes that must be made. We must
work diligently in the years ahead to deliver a financially solvent and economically strong nation to our
children, grandchildren and future generations of Americans. We no longer have any excuse for failing to act.
We know what has happened in our past. We know we are heading for disaster. I don't necessarily agree 100
percent with every assessment Mr. Stockman makes about what has happened over the past 15 years or all of his suggested corrective
action. But my differences with Mr. Stockman are minuscule compared to totality of what is presented
in the book.
During my entire adult life I have
believed in sound honest money and financial discipline. I believe that it is the responsibility of government to ensure
that our money and the government's finances are managed with the highest level of integrity. I felt this way when I
was a government employee in my 20s and feel the same today. It has been very hard for me to accept the fact that many
of our political leaders have failed to meet the most basic test of integrity, managing other peoples money.
The Good Guys
President Dwight D. Eisenhower - The greatest military commander in the history of the United States that became
a two term President understood that balanced budgets were essential to good government. He warned the nation
that "we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial
complex. The potential for the disastrous rise of misplaced power exists and will persist." Unfortunately we failed
to heed the warning of this great man. Instead we have created a warfare state that is draining resources and weakening
our nation.
William McChesney Martin, Federal Reserve
Chairman from 1951 to 1970 - One of his most famous statements was "I pledge myself to support all reasonable measures
to preserve the purchasing power of the dollar." During his long tenure as Federal Reserve Chairman he fought against
those that "posed dire threats to the Fed's fundamental mission of maintaining the purchasing power of the dollar and
financial stability." During the later part of his tenure Mr. Martin was bullied by President Johnson to facilitate
his guns and butter spending program.
Paul Volcker, Federal
Reserve Chairman from 1979 to 1987 - Mr. Volcker used his iron will to successfully lead a "determined campaign
to crush inflation" and restore sound money in the United States.
Henry Morgenthau, United States Secretary of the Treasury from 1934 to 1945 - "Time and time again Morgenthau
fought to restrain New Deal spending and deficits." Due to his long tenure he was able to express a complete lack of
faith in deficit spending. He knew it failed to solve unemployment problems. He also raised the funding needed
to pay for World War II.
The Some Good - Some Bad
Guys
President Ronald W. Reagan - Reagan talked
a good game about balanced budgets and fiscal restraint during his two terms as President. However, "the Reaganite
legend begins with the false proposition that the Reagan administration stopped the march of "Big Government" and
brought a new fiscal restraint." The bottom line is that Reagan didn't meet his commitments to balance the Federal
Budget. The Federal spending to Gross Domestic Product ratio was higher than the big spending Democrats that proceeded
him. He also appointed Alan Greenspan as Chairman of the Federal Reserve, one of the worst decisions in American
history. Since the Cold War ended on Reagan's watch we have to give Reagan some credit as a Good Guy. Stockman
makes the case that all Reagan did was expand the warfare state needlessly by making the massive military-industrial
build-up mistake that Eisenhower warned the nation to avoid.
President William J. Clinton - One has to give Bill Clinton credit for cutting the defense budget
to levels that were consistent with Eisenhower's thinking and achieving a budget surpluses for four consecutive years in his
second term. Many people believe that most of the credit for the balanced budgets should be given to the Republican
Congress that forced Clinton to adopt a balanced budget. It was under Clinton that Fannie
Mae and Freddie Mac began expanding the housing bubble by issuing large amounts of mortgage-backed debt.
The Bad Guys
Alan Greenspan, Federal
Reserve Chairman from 1987 to 2006 - The "maestro" set the United States on the path to its financial destruction
by creating multiple stock market bubbles and the housing bubble, and facilitated massive budget deficits through his
actions. It is likely he has been responsible for more lost wealth by Americans than any other person. What makes Greenspan
even more despicable is that during the early part of his career he was an advocate for sound money. In a 1966 essay
Greenspan defended the gold standard and wrote that the Federal Reserve caused the 1929 stock market crash by pumping "paper
reserves into American banks".
Ben Bernanke, Federal
Reserve Chairman from 2006 to present - Helicopter Ben has lived up to his nickname. He has facilitated the massive expansion of
Federal Debt and created trillions of dollars of fiat money through its quantitative easing programs (QE1, QE2 and
QE forever). He has facilitated the redistribution of wealth from savers and Main Street America to Federal Government
wealth redistribution programs and those individuals known collectively as the 1 percent.
President George W. Bush - What can one say about a President that
pursues two unfunded wars, reduces taxes, creates massive deficits, expands government funded healthcare programs, and
takes no action to correct massive economic bubbles in the economy during his terms in office? His record is an unmitigated
disaster.
President Barrack H. Obama - What
can one say about a President that permits multiple years of trillion dollar deficits, creates an ineffective $800B stimulus
program, advocates and signs into law a massive health care entitlement program and takes no action to address
trillions of dollars of future unfunded government liabilities?
President Richard M. Nixon - "In jettisoning the monetary anchor of the Bretton Woods gold exchange standard"
in 1971, "Nixon paved the way for the eventual deformation of central banking." Nixon took every
action possible to accelerate the US economy to assure his reelection including intimidating the Federal Reserve
Chairman, Arthur Burns.
Henry "Hank" Paulson,
Secretary of the Treasury from 2006 to 2009; President Lyndon B. Johnson; President Franklin D. Roosevelt;
President James E. Carter; Arthur Burns, Federal Reserve Chairman from 1970 to 1978; G. William Miller, Federal Reserve Chairman from 1979 to 1981; Milton Friedman, Economist;
and many others in national leadership positions have contributed to the multi-decade conversion of our formerly capitalist
country to one dominated by state sponsored crony capitalism and a government that has become a warfare and welfare state.
We have heard much about how the "one percent" has ripped off Main
Street America during the past decade. The Occupy Wall Street protests of 2011 highlighted the economic inequality in
the country. The problem with Occupy Wall Street was that they were protesting the wrong people. Their primary
focus should have been the Executive Branch of the government, the United States Congress and the Federal Reserve. While
there is no question that Wall Street has gained tremendous wealth from crony capitalism, the underlying fundamental problem
has been created by the government and the Federal Reserve.
After reading
The Great Deformation one has to ask oneself the fundamental question. Is it possible for the citizens
of the United States to change our national fiscal, monetary and economic course through the standard political
process. We have gotten far off course during the past 42 years since Nixon's decision to default on our obligations
to exchange gold for dollars on demand. We have created so much debt (government at all levels plus consumer plus
corporate) and unfunded liabilities that it is hard to see how a positive political solution comes about.
If you have the time, energy, intestinal fortitude and willingness to open
your mind to the truth you should read The Great Deformation. It is not a pretty story but it is a factual
history of how we got ourselves into this mess.
Copyright 2013 by TPM
