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We’ve Been Disrupted

By David Stockman  |  January 1, 2020

Happy New Year! It’s officially the Turbulent Twenties…

Of course, Donald Trump’s harsh, unhinged, unrelenting attacks on Jerome Powell and the Federal Reserve have served more than adequate warning of what’s coming.

If even the Donald can see the Fed has morphed into an all-powerful monetary politburo that threatens the very survival of capitalist prosperity in America, the end of the 30-year fantasy launched by Alan Greenspan in October 1987 must truly be at hand.

Like no other politician since December 1913 – when the Federal Reserve System was midwifed into existence by the great financial statesman Congressman Carter Glass – the Great Disruptor has exposed its awful secret.

Glass intended the Fed to be a modest, economically passive “bankers’ bank.” It would provide backup liquidity to the banking system against good commercial collateral at a penalty spread above the free market rate of interest.

Alas, it’s become an intrusive instrument of plenary monetary central planning by an unelected priesthood of delusionary technocrats.

The emphasis here is on the word “passive.” The kind of old-fashioned central banking on which the Fed was predicated in 1913 didn’t pretend to superintend the entire gross domestic product, or to target the inflation rate, or to track the level of unemployment, housing starts, retail sales, capex orders, export volumes, or anything else in today’s constellation of incoming data.

Back then, most of these macroeconomic aggregates hadn’t been invented, let alone measured and tracked weekly, monthly, and quarterly.

In any event, the underlying level of Main Street activity and the growth rate of society’s wealth was understood, properly, to be the business of capitalism, not the state.

The variables today’s monetary central planners obsess about were way outside the remit of the Glassian Fed.

The aggregates were taken as a given. They were the unwilled, unplanned, undirected outcomes of millions of workers, entrepreneurs, investors, inventors, savers, and speculators pursuing their own ends on the free market.

The Fed’s far more modest assignment was to provide market-priced liquidity and to foster stability within the four walls of the commercial banking system. That modest assignment, in turn, reflected the belief that market-based capitalism would take care of the rest.

Not surprisingly, the original staff at the Fed were to be green-eyeshade accountants and commercial bankers. They were to be experts capable of assessing bank balance sheets and the credit value of commercial collateral like real trade bills backed by finished inventory or sold goods presented to the 12 regional reserve banks for discount loans.

They weren’t to be PhD economists who pretend to comprehend and direct a continental economy.

Between then and now, the 19 monetary central planners who now comprise the Federal Reserve Board have given “mission creep” an altogether new definition.

In fact, the Fed has morphed into a rogue agency endowed with open-ended state power to dominate the entire financial system.

And, by manipulating the price of money, debt, and most other financial assets, they can shape the ebb and flow of the nation’s $21 trillion economy.

The Turbulent Twenties are upon us for one reason above all others…

The Federals Reserve’s regime of monetary central planning causes failure on Main Street but unspeakable windfalls to Wall Street and wealthy elites.

See for yourself…

Since 1989, the share of U.S. net worth attributable to the bottom 90% of households has dropped from 33% to 24%. The share held by the top 1% has soared from 30% to nearly 39%.

Contrary to Democrat and liberal propaganda, this isn’t due to “trickle down” tax policy.

The low-water market for tax rates was reached in 1986, when Ronald Reagan’s landmark tax reform bill cut the top rate for all forms of income – wages, salaries, dividends, and capital gains – to 28%. Since then, rates have risen steadily higher on earned income and have been only modestly reduced on capital gains.

Accordingly, the driver of inequality is bad money, not pro-rich tax policies.

The Fed’s massive balance-sheet expansion since Greenspan took the helm in August 1987 – from $200 billion to $4 trillion, a multiple of 20 times – is the culprit.

In today’s debt-saturated economy, Fed “stimulus” in the form of massive bond-buying and interest-rate repression never leaves the canyons of Wall Street. It no longer causes credit-based growth spurts on Main Street. It leads only relentless inflation of financial assets prices.

The Humphrey-Hawkins growth and inflation mandates are the cover story for this perverse regime. But, in today’s fully integrated $85 trillion global economy, these purportedly sacrosanct mandates amount to an unattainable, threadbare farce.

The Donald’s everlasting service to whatever future prosperity may yet be attainable is this:

The rambunctious calling-out in advance – loudly, explicitly – that the next financial crisis and resulting recessionary dislocation will be the sole responsibility of the Federal Reserve.

And that’s something totally new under the sun in this era of servile, Fed-fawning “leadership” demonstrated by the likes of Obama, Clinton, and both Bushes.

At the end of the day, “sound money” scribblers and even the “End the Fed” candidacy of Congressman Ron Paul couldn’t break the spell. They were and are marginalized by Bubblevision owing to the requisites of “access journalism” and the willful blindness of the corporate owners at The Wall Street Journal, Bloomberg, CNBC, Reuters, et. al.

But the Donald has more than 60 million followers on his Twitter account. He has an audacious, take-no-prisoners style of politics. And he’s got a yawning empty space under his orange combover when it comes to even the rudiments of any policy.

But no matter. His crude need to name and blame a scapegoat for the impending calamity is all that’s required…

It’s what makes him the Great Disruptor.

Sense and Stability

I’ll say it again: This is the most politicized market in history. And the Tweeter-in-Chief is still in charge. So, the situation is changing almost by the minute.

It’s “Impeachment!” in Imperial Washington and all over the Mainstream Media. It’s “Easy Money!” on Wall Street and across Bubblevision.

And it seems as if the whole world has, indeed, gone mad.

Amid this chaos, prices will continue to rise and fall, trends will continue to develop and dissipate.

Well, The Stockman Letter is made for times like these. And we’ve updated our design to help us better navigate to not only the safest harbors but also the most promising opportunities.

The stakes are as high as they can be heading into 2020. Markets appear to be straining, catching up to an economy that’s been weak and getting weaker for years.

The Donald is tied up in the day-to-day movements of the major stock indexes like no president before him. The increasingly desperate incumbent will do anything he must to hold the White House.

It’s a major tipping point. And there’s no telling what the Donald’s great disruptions could do to your wealth.

Please click here to learn more about The Stockman Letter and what comes next…

To common sense.

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR