DAVID STOCKMAN: The Fed, led by Bernanke,
increased its balance sheet by 1 and 1/2 times
more than had occurred during the first 94
years of the Fed's operation.
13 weeks, 150% of what it taken 94 years to
create.
The balance sheet of the Fed was $500 billion
at the turn of the century.
It had taken roughly 84 years to get there
from when the Fed opened in 1914.
During the first few years of this century,
Greenspan pumped money like no tomorrow, trying
to bail out the economy from the dotcom and
tech crash.
That, of course, produced an even worse housing
bubble and then the consequence of that in
2008 and 2009.
But the point is that on the eve of the Lehman
filing, the balance sheet of the Fed was about
$850 billion.
In the next 13 weeks, which isn't a long time
in the scheme of things, the Fed, led by Bernanke,
increased its balance sheet by 1 and 1/2 times
more than had occurred during the first 94
years of the Fed's operation.
13 weeks, 150% of what had taken 94 years
to create.
Now, that's just madness.
There was no predicate for that.
There was no historic tradition or learning,
or even financial theory that says you should
take the balance sheet from $850 billion to
$2.2 trillion in 13 weeks.
What it did was it fundamentally ruined Wall
Street.
All of the lessons that should have been learned
were basically interrupted by that madness
that Bernanke undertook.
Once they had increased the balance sheet
in this fantastic way, they didn't know what
to do next.
They just kept doing more until obviously,
we got into Q2 Q3 and a $4.5 trillion balance
sheet.
Now, I think that when you have, as we have
today, a society that's so-- a public narrative,
I should say, that is so focused on the minute
and the hour and trading conditions in Wall
Street, both the overnight market and the
cash market, that we lose all sense of perspective
when you look at things on a day-to-day or
even hour-to-hour basis.
But the fact is, when you take the balance
sheet in a few short years from $900 billion
to $4.5 trillion, it's the biggest financial
fraud in human history.
Trump obviously promised that he was going
to make the American economy great again and
he said, check with me later, and I'll tell
you how.
Most campaigns have pretty thin gruel for
policy content anyway, but his was completely
content free.
He said that we're losing jobs massively,
which is true, but he didn't say how he would
bring them back other than that we had bad
deals, and that he was a deal maker par excellence.
He would take the skills that led to his real
estate empire, whether it was true or not,
he would apply those to renegotiating all
our trade deals, and that was going to make
everything better.
That was complete nonsense.
None of this had to do with bad trade deals.
NAFTA was what it was.
NAFTA didn't cause our trade deficit with
Mexico to rise to $70 billion today when,
in 1991, we actually had a surplus with Mexico
at the same time that our trade balance with
Canada has been more or less close to zero
for the same 25 years.
Now the point is, this is a function of monetary
policy.
It's the fact that we've inflated the costs
and wages in our economy to a noncompetitive
level in the global market, where we buy and
sell goods, and money flows and finance flows
in its trillions, day in and day out.
He had no content to policy.
He just said, trust me.
I'll make some good deals, and it'll get better.
The point is, in flyover America, they were
desperate enough for a change that they were
willing to take a chance.
I call it the Hail Mary of politics.
Trump said he's the king of debt, and he's
proving it at the federal level.
It's bad enough when you have a giant deficit
at the bottom of a business cycle in the depths
of a recession or in the year or two of recovery.
I don't think it really solves anything, but
at least it's understandable in terms of the
fiscal math.
When you're 10 years into a recovery, when
you're at month 115, where we are today, and
therefore, the second longest business expansion
in history, you have recession facing you
around the corner.
It's written on the forehead of the economy,
because sooner or later, the economy is going
to roll over.
Here's the key point and why the next shoe
to fall is going to be fairly traumatic and
unpleasant.
He is going to need to borrow, in year 10
of a business cycle, $1.2 trillion, an unheard
of number, over 6% of GDP at the same time
that, finally and belatedly, the Fed is beginning
to normalize its policy and particularly shrink
its balance sheet through the QT program at
a $600 billion rate.
Now, they make this sound very antiseptic.
We're just going to let it roll off.
That's not true.
They're effectively, as an economic or financial
matter, functionally selling the debt.
We are at a point of peak Trump.
I actually, in my book, identify a specific
date-- September 20, 2018.
The S&P peaked at 2.940.
That happened to be exactly 800 points higher
than election eve, when it was 2,140.
Trump called it one big, fat, ugly bubble,
an overvalued market, an accident waiting
to happen in the campaign.
He was right then, and yet he's such an incorrigible
egotist that he could not prevent himself
from embracing 800 points, a gain that were
utterly unjustified, and that are going to
come back to bite him hard as the air comes
out of this balloon.
The point, though, is it was only symptomatic.
Embracing the bubble, I call that a rookie
mistake.
Ronald Reagan knew better when he took office.
We had a mess then too, but he spent three
years denouncing the failed Jimmy Carter economy,
denouncing the failed policies of the Democrats.
He never took ownership until we got to 1984.
Trump is making the opposite-- took the opposite
position.
Within days of being sworn in, all of a sudden,
he was talking about the Trump bump and an
economy that he was taking credit for that
was actually failing.
What he doesn't seem to realize is that at
the end of every long business cycle-- we've
only had two over 100 months-- you do get
an unemployment rate down to 4% or 3.7%.
That's like the law of economic gravity happening.
He had nothing to do with it.
We know from the '60s, the first cycle that
lasted that long, by the time you get to 3.7%
unemployment, you're about a year away from
a recession.
We know from the 1990s, the longest cycle,
119 months, that when it hit 3.8 in the spring
of 2000, we were less than a year away from
the next recession.
Trump has really made a huge mistake embracing
the so-called booming economy, embracing the
stock market.
That's why I call it peak Trump.
The problem is, having made that mistake,
as everything comes unwound this year and
next year, which it will, he's going to get
blamed for it.
It's going to be same thing that produced
Trump in 2016 will produce, I think, a left-wing
populist income redistribution-oriented, "let's
get the billionaires" candidate.
That will mean some pretty serious repercussions
for policy, and it will mean the end of the
dream on Wall Street.
