Trumped! A Nation on the Brink of Ruin... And How to Bring It Back

by David Stockman

  TRUMPED!

  TRUMPED!

  A NATION ON THE BRINK OF RUIN . . .

  AND HOW TO BRING IT BACK

  DAVID A. STOCKMAN

  Copyright © 2016

  by Subsidium LLC

  14 W. Mount Vernon Pl.

  Baltimore, MD 21202

  All rights reserved.

  ISBN: 978-1-6212918-4-8 (print)

  ISBN: 978-1-6212918-5-5 (ebook)

  Published by Laissez Faire Books, 808 St. Paul Street, Baltimore, Maryland

  www.lfb.org

  www.agorafinancial.com

  Cover and Layout Design: Andre Cawley

  Art Director: Susanne Clark

  For Jennifer, Victoria, Rachel and Robert.

  CONTENTS

  PART 1

  TRUMPED! WHY IT HAPPENED

  1 Flyover America’s Decline and the Rise of Donald Trump

  2 Why the Flyover Zone Is Hurting—Bubble Finance Is Strictly for the Bicoastal Elites

  3 The Warren Buffett Economy: How Central Bank-Enabled Financialization Has Divided America

  4 The Case Against Keynesian Central Banking and Why the FOMC Should Be Abolished

  5 Trump Isn’t All Wrong About Trade Deficits—How Washington’s Money Printers Betrayed American Workers

  6 America’s Rolling LBO and Why There Have Been No Breadwinner Job Gains Since the Year 2000

  7 Falling Backwards in Flyover America—Why Real Household Income Is Down 21% Since 2000

  PART 2

  BUBBLE FINANCE AND ITS RUINS

  8 Government Entitlements: The World’s Sixth-Biggest Economy and the Coming Insolvency of Social Security

  9 “Morning in America” Never Was—How the Federal Debt Went From $1 Trillion to $35 Trillion in Four Decades

  10 How the GOP Got Trumped—the Fiscal Follies of Johnny Lawn Chair and Faker Ryan

  11 America’s Bridges Are Not Falling Down: The Perennial Myth of Crumbling Infrastructure

  12 On the Impossibility of “Helicopter Money” and Why the Casino Will Crash

  13 Busting the Banksters—the Case for a Super Glass-Steagall

  14 Bubbles in Bond Land—It’s a Central Bank-Made Mania

  15 Revolt of the Rubes—Bravo, Brexit!

  16 The War on Savers and the 200 Rulers of Global Finance

  17 Fannie Mae’s Swell New Palace—Why the Imperial City Must Be Sacked

  18 Red Ponzi Ticking—China and the Dark Side of Bubble Finance

  19 The Apotheosis of Bubble Finance—the Coming Crash of Tesla and the FANGs

  PART 3

  IMPERIAL WASHINGTON AND ITS GLOBAL DEPREDATIONS

  20 Imperial Washington—Why There is Still No Peace on Earth

  21 A Peace Deal for the Donald—Go to Tehran, Bring Home the American Troops

  22 In Praise of Ignorant Politicians—Unschooled in Beltway Delusions

  23 Hillary Clinton—Class President of a Failed Generation

  24 A Lesson for The Donald—Barack, We Hardley Knew Ye

  25 The Aspen Strategy Group—Hillary’s War Cabinet in Waiting

  26 In Praise of the Iran Nuke Deal—A Chance for Peace If We Can Keep It

  PART 1

  TRUMPED! WHY IT HAPPENED

  CHAPTER 1

  Flyover America’s Decline and the Rise of Donald Trump

  FIRST THERE WERE 17. THEN LITTLE MARCO, LOW ENERGY JEB AND LYIN’ Ted were gone. At length, there was one. And now there is even a chance he may become president.

  Donald Trump’s wildly improbable capture of the GOP nomination and rise toward the White House is surely the most significant upheaval in American politics since Ronald Reagan.

  Yet the rise of Trump—and Bernie Sanders too—vastly transcends ordinary politics. In fact, it reaches deep into a ruined national economy that has morphed into rank casino capitalism under the misguided policies and faithless rule of the Washington and Wall Street elites.

  This epic deformation has delivered historically unprecedented setbacks to the bottom 90% of American households. They have seen their real wealth and living standards steadily deteriorate for several decades now, even as vast financial windfalls have accrued to the elite few at the very top.

  In fact, during the last 30 years, the real net worth of the bottom 90% has not increased at all. At the same time, the top 1% has experienced a 300% gain while the real wealth of the Forbes 400 has risen by 1,000%.

  That’s not old-fashioned capitalism at work; it’s the fruit of a perverted regime of printing press money and debt-fueled faux prosperity that has been foisted on the nation by the bipartisan ruling elites.

  To be sure, the proximate cause of this year’s election upheaval is similar to that in Reagan’s time. Back then, an era of drastic bipartisan mis-governance generated an electoral impulse to sweep out the Washington stables.

  Now, however, it is not just the Beltway political class that is under attack. The very foundations of American economic life are imperiled. What remained of healthy market capitalism in Reagan’s time is no more.

  It has been battered by 30 years of madcap money printing at the Fed. It labors under the $50 trillion of new public and private debt generated by that monetary eruption. And it staggers from the destructive blows of serial financial bubbles.

  These bubbles have self-evidently resulted in a destructive boom-and-bust cycle in the financial system, but also much more. Bubble Finance has drained productivity and efficiency from the Main Street economy and has channeled vast resources to speculators and wasteful malinvestments.

  THE ECONOMIC ROT WAS GENERATED IN WASHINGTON, NOT BY OPEN BORDERS AND TRADE

  Unfortunately, this policy-generated rot at the foundations of the U.S. economy has bred a profusion of public fears and scapegoats. Illegal immigrants, bad trade deals and the unfair mercantilist practices of China and many other foreign governments have taken the blame—especially in Donald Trump’s campaign patter.

  But these scapegoats are either irrelevant or just symptoms. The real problem is not free trade or free movement of people.

  To the contrary, America’s faltering economy was caused by the policy machinations of Washington, D.C., not at the illegal crossing routes on the Arizona border or the containership berths at Long Beach. For more than three decades, the nation’s central bank has flooded the U.S. and world economies with too much free money (dollar liabilities) and Washington politicians have accommodated the Beltway racketeers and the country’s huge entitlement constituencies with too much free booty.

  So the real disease is bad money and towering debts. The actual culprits are the Wall Street and Washington policy elites who have embraced statist solutions, which aggrandize their own power and wealth.

  That much, at least, Donald Trump has right. Throwing out the careerists, pettifoggers, hypocrites, ideologues, racketeers, power seekers and snobs who have brought about the current ruin is at least a start in the right direction.

  Trump is directionally correct on another great matter as well. The American Imperium abroad has been a fiscal, foreign policy and moral catastrophe, as we outline in depth in Part 3.

  When the Cold War ended 25 years ago, NATO should have been disbanded and Washington’s vast war machine should have been drastically shrunken—even as the rest of the so-called free world was invited to share in the pursuit of peace and in shouldering the burdens of its own security.

  But what we got, instead, were the Clinton/Bush/Obama wars of intervention and occupation. They have resulted in failed states, sectarian carnage and terrorist blowback, not a more se
cure America.

  Worse still, political demagogues, including Trump, have fanned public fears that the barbarism Washington unleashed in Syria, Iraq, Libya, Yemen and elsewhere now threatens every city and town in America. That is a gross exaggeration, to say the least, as we demonstrate later in this book.

  Yet there is absolutely no doubt that the arrogant and insular group-think of the Imperial City is the cause of the murderous chaos that rages across the greater Middle East and beyond. Americans are fearful because Washington’s reckless and destructive foreign interventions have not made them more secure; it has put them in harm’s way.

  So far, Donald Trump’s solutions have been largely rhetorical, inchoate and often far too bellicose. But he has pinned the tail where it belongs. That is, on the imperial notion that America is the indispensable savior-nation and policeman of the world when Washington should be focused on America’s homeland security first.

  What made America great once upon a time, of course, were free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule.

  Whether Donald Trump gets that part of the equation remains to be seen, and already there is much to suggest that he won’t.

  Then again, the GOP establishment has betrayed these principles entirely; the Democrats are clueless; and the mainstream media and punditry is overtly hostile.

  So if the ideals of world peace, capitalist prosperity and constitutional liberty are to survive at all, it’s up to The Donald.

  Admittedly, that seems like cold comfort. There is much that is dark, disturbing and authoritarian about the Trump personality and candidacy.

  But a nation that has been Trumped is a people coming back to life. Americans don’t want to take it anymore. Instead, they want their existing rulers to take a permanent hike.

  That’s a damn good start, and it is the outlaw campaign of Donald J. Trump that has finally lit the flame of rebellion.

  THE ESSENCE OF TRUMP’S APPEAL—FLYOVER AMERICA ISN’T WINNING ANYMORE

  This book is no testimonial on behalf of Donald Trump’s candidacy. Much of what he advocates is wrong-headed or downright reprehensible. But it does salute him as the rallying force for Main Street insurrection because the existing regime of Bubble Finance on Wall Street and statist aggrandizement in Washington threatens incalculable ruin.

  In that context, we are mindful that in posturing as an anti-politician outsider Trump has also proven himself to be a rank demagogue. His scurrilous attacks, inter alia, on Moslems, Mexicans, minorities, women, political opponents and countless more are frequently beyond the pale—even by today’s rudely partisan standards of public discourse.

  Indeed, there has rarely been a political figure in American life who has emitted as much baloney, bombast, brimstone and bile as Donald Trump. And none has ever matched his narcissism and egomaniacal personality.

  But that’s not why he’s succeeding.

  The Donald’s patented phrase that “we aren’t winning anymore” is what’s really striking a deep nerve on Main Street. His rhetoric about giant trade deficits, failed foreign military adventures and other shortcomings of America’s collective polity self-evidently touches that chord.

  Indeed, Trump’s appeal is rooted at bottom in voter perceptions that they personally are no longer winning economically, either. And as hinted at above and as we will further document in depth, the vast expanse of Main Street America has indeed been losing ground for the last 25 years.

  What is winning is Washington, Wall Street and the bicoastal elites. They prosper from a toxic brew of finance, debt and politics.

  We call this deformed system Bubble Finance. Its tentacles extend from the vast apparatus of Wall Street and the finance and asset management businesses it feeds to the venture capital hotbeds of Silicon Valley, Boston, New York City, Research Triangle, Seattle, San Diego, Austin and Denver.

  It also includes to the LA branch of entertainment (movies and TV) and the San Francisco branch of entertainment (social media). Most importantly of all, it encompasses the great rackets of the Imperial City and its extensions and auxiliaries.

  Indeed, Washington’s unseemly prosperity arises from its sundry precincts of debt-financed Big Government. The latter has been enabled, in turn, by the massive bond-buying campaigns of the Fed and other central banks.

  These flourishing domains of statist hegemony include the military/industrial/surveillance complex, the health and education cartels, the plaintiffs and patent bars, the tax loophole lobbies, the black and green energy subsidy mills and endless like and similar K-Street racketeers.

  By contrast, most of America’s vast flyover zone has been left behind. When adjusted by an honest measure of inflation we call the “Flyover CPI,” real hourly wages are lower than they were in 1985, and real median household income is down 21% from year 2000 levels.

  As we will show below, the US economy has not generated any new breadwinner jobs since the turn of the century. Real net business investment is 20% below its year 2000 level. And productivity growth is on the verge of extinction.

  So it is no coincidence at all that the economic health and wealth of the bottom 90% of households has been slumping for decades. The plain fact is, the Main Street economy is failing, and failing badly.

  Not so when it comes to the financial economy of Wall Street and its venture capital satellites. The real net worth and incomes of the top 1% have soared owing to the fact that the stock market has been transformed into a gambling casino by the massive monetary intrusion of the Fed.

  As will be more fully explored later, virtually free overnight carry trade funding, monetization of the public debt on a heretofore unimaginable scale and stock market bailouts and puts have generated vast ill-gotten gains from incessant leveraged speculation. These gains, of course, have not remotely trickled-down to Main Street.

  Moreover, the wealth round trip of the bottom 90% depicted in the chart above was hardly real in the first place. The calculated levels of Main Street net worth temporarily rose owing to Greenspan’s 15-year housing bubble. But that eventually culminated in the great financial crisis, meaning that what is left is mainly the mortgage debt.

  In fact, Flyover America is buried in debt—$14.3 trillion of it. Household debt relative to income is still more than double its historical level.

  Likewise, the companies most Americans work for have been strip-mined to the tune of trillions in order fund financial engineering gambits like stock buybacks and M&A deals rather than productive investments in plant, equipment and technology.

  Finally, the taxpayers of Flyover America are already heavily burdened. Yet they have not yet begun to feel the further, massive tax increases that will soon be required to fund the Warfare State and Welfare State excesses of the ruling elites.

  Indeed, three decades of rampant money printing, debt accumulation and serial financial bubbles have resulted in what we call the “Great Deformation.”

  In Washington, K-Street racketeering has usurped democracy. On Wall Street, speculation has extinguished honest price discovery and efficient capital allocation. In America’s corporate C-suites, financial engineering and stock pumping have replaced productive investment.

  What has emerged is a mutant state that is neither capitalism nor democracy. Soon 10,000 people will own a preponderant share of the wealth; 10 million people will live grandly off the droppings; 150 million will live off the state; and the rest of America will be left high and dry waiting for the house of cards to collapse.

  That prospect explains why Trump is winning in Flyover America—even as it confirms why the bicoastal elites have gone postal on The Donald. The mess in America is their fault, and they are trying mightily to shift the blame.

  But that shrill attack is also why voters believe Trump’s charge that the system is rigged.

  It surely is, and our purpose in the pages ahead is to show exactly how and what needs to
be done to bring America back from the brink.

  DONALD TRUMP’S CANDIDACY—THE GOOD AND THE BAD OF IT

  In the next chapters we will document at length why the United States is a nation on the brink of financial ruin. Our purpose at this point, however, is to dispel any illusion that Donald Trump—the man and his platform—offers any semblance of a remedy.

  In the great scheme of history, The Donald’s role may be to merely disrupt and paralyze the status quo. And that much he may well accomplish whether he is elected or not.

  For what is actually happening is metapolitical. The bipartisan ruling elites are being Trumped, as it were, by a populist uprising.

  Their entire regime of casino capitalism, beltway racketeering and imperial hegemony is being unmasked. The unwashed voters are catching on to the “rigged” essence of the system, and have already become alienated enough to rally to outlaw politicians—like Bernie and Trump—peddling ersatz socialism and reality-TV populism, respectively.

  To be sure, the metaphor of shock and awe and the idea of “regime change” have been given a bad name by Bush the Younger and his bloody henchmen. Yet there is no better way to describe Donald Trump’s rise and role than with exactly those terms.

  The current regime arose in the 1980s from Ronald Reagan’s regrettable decision to rebuild the nation’s war machine—along with the GOP’s conversion to Dick Cheney’s “deficits don’t matter” fallacy and Alan Greenspan’s ill-fated discovery of the Fed’s printing press in the basement of the Eccles Building. Those deplorable, illicit and unsustainable departures from sound policy have subsequently morphed into the full-blown mutant state referenced above.

  Its many deformations are undeniable. They include soaring public and private debts at home; the peace-destroying and fiscally crushing American Imperium abroad; serial financial bubbles that have gifted mainly the 1%; and rampant Beltway influence peddling and a PAC-based campaign finance system that amounts to money racketeering, among countless other ills.