David Stockman: Central Banks Are "Sick"

by JASmius



I had very little use for David Stockman thirty-two years ago when, as OMB Director, he was demanding that President Reagan abandon his tax cuts that pulled the U.S. economy out of the Carter recession on Keynesian budget-balancing grounds.

But I love the guy now, because he keeps echoing me:

Wall Street is "one sick puppy," but the world's major central banks are even sicker as they throw impossible mountains of money at intractable problems, according to David Stockman, director of the Office of Management and Budget in the Reagan White House.

The outspoken Stockman said a stock market correction appeared to have taken hold last week until the Federal Reserve deliberately stopped it with some hints about a possible extension of quantitative easing (QE).

The comment from St. Louis Fed president James Bullard (who Stockman dubbed "Dullard") promptly caused Wall Street to buy the dip, and stocks came roaring back.

"And it's no different anywhere else in the central bank besotted financial markets around the world. Everywhere state action, not business enterprise, is believed to be the source of wealth creation — at least the stock market's paper wealth version and even if for just a few more hours or days," Stockman asserted on his Contra Corner blog. [emphasis added]

Gee, I can't imagine where they could have gotten that cockamamie idea, can you?

Stockman noted that the U.S. also remains in precarious shape, thanks to ultra-easy monetary policies by the Fed. He said Bullard's suggestion that the Fed could put the end of QE on hold shows Bullard has been "drinking the central bank cool aid."

"Never mind that the Fed has pinned the money market rate at zero for 71 months and unleashed the greatest carry trade gambling spree in recorded history; or that $3.5 trillion of debt monetization during that period has deeply deformed yields and pricing in the entire fixed-income market," he stated.

"No, the job of the monetary politburo is apparently to sift noise out of the in-coming data noise — even when it is a feedback loop from the Fed’s own manipulation and interventions. So the stock market rallies strenuously because an incoherent central banker starts randomly gumming about self-evident financial noise."

That, and to maintain the façade of "economic recovery" while the U.S. economy remains mired in permanent economic depression, plus prevent the federal budget from melting down in the eruption of interest payments that higher long-term rates would trigger.

"Monetary politburo"; I'm going to have to shamelessly glom that line.  Seeing as how Mr. Stockman is echoing me, he really shouldn't mind a little quid pro quo.