Submitted by Taps Coogan on the 17th of March 2020 to The Sounding Line.

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David Stockman, former US Representative and Director of the Office of Management and Budget under President Ronald Reagan, recently spoke King World News about his decidedly bearish outlook for the markets and economy. He warns that the Coronavirus is just a catalyst for an the inevitable breakdown of over-stretched and over-financialized markets and the economy.

 

Some excerpts from David Stockman:

“I would start with four words: ‘The Jig is Up.’ And I am referring to 30 years of financial and economy fantasy that I think is coming to a rude and sudden ending because it was all based on false economics, unsound money, and rampant debt and speculation that, at some point, brings down the whole edifice. So, I think the real disease that we are facing at the moment is not Covid-19. That’s just the catalyst. That’s just the trigger for an awakening here, a massive reset and correct. It think the real disease in runaway financialization driven by the central banks, led by the Fed, that’s been intensified in the last ten years but has been going on really since Greenspan started the whole thing in 1987. So, what we have underneath an $85 trillion world GDP… is exploding debt, …money pumping from the central banks like we’ve never seen before…”

“I think we are in the mother of all bond bubbles. This is a peak of manic speculation in treasury bonds and all fixed income really, and it’s only a matter of time before this thing goes sky high… The central banks are lost. The traders are just kind of flopping around blindly, trading chart points which are failing and headlines which are totally ominous and unpredictable… We are now maybe entering an era where some of the truths that a lot of us have been talking about for a long time come home to roost… I think some pretty rough times, some pretty traumatic adjustments are going to happen, not the least of which because of this Covid-19. I am no epidemiologist or health expert and I am not focusing on exactly how long this contagion is going to run or whether it is going to effect 100 million, or 10 million, or 1 million. Who knows…? What it is doing is highlighting and exposing how fragile the entire global economy is and the supply chains that have been built up during the false economics of the last 20 or 30 years.”

“The whole world economy is run on these JIT principals (Just in Time), which is fine if you assume that there is some guiding hand in the world that can keep the economies moving steadily upward without fail forever more. We know that isn’t true. That’s what Covid-19 is reminding us. So, these supply chains were never really economically rational. They had hidden costs buried beneath the supply chain… and now we are going to find all that out… That would be bad enough if the world economy was resilient on the finance side, but it is not…”

If you are trying to size up the ‘worst-case’ risks of a continued selloff in the financial system and accelerating spread of Covid-19, there you have it. Time will tell if that is where we actually go, though I have my doubts.

There is much more to the interview, so enjoy it above.

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