Ronald Reagan’s former budget director, David Stockman, gave an explosive interview this week, lambasting President Donald Trump’s “huge rookie mistake” of embracing a stock market bubble and a late-stage economic cycle he says will ultimately derail his presidency.
“He’s a total economic ignoramus. He has no idea what he’s doing. He is leading the country into the jaws of a gargantuan fiscal crisis.”
But that’s not all he said.
Stockman, appearing on Yahoo Finance’s “The Final Round,” also called Trump “a total economic ignoramus” and essentially made fun of the president’s red-state base of voters.
The interview started out fairly mundane, with Stockman noting the market has had nowhere to go but down since September’s record highs.
“He embraced a great big fat, ugly bubble. He told us that in November 2016 — the stock market S&P was at 2,140 then, and two years later on September 20, it was at 2,940, 800 points higher. And all of a sudden that ugly bubble became a vindication of the miracles of the Trump economic program. It was a huge rookie mistake.
“This market has nowhere to go but down, this cycle is at the very end of its expansion. This world, if you look at it, there are headwinds coming from everywhere in the world. China’s got trouble, Europe has trouble — Europe is actually tilting over into recession again and clearly the German numbers are terrible and they’re the leading edge of the European economy. And we here have a fiscal problem that its utterly out of control at the worst time in the cycle that you can imagine.”
Stockman, who served in the House from 1977-81 (R-Mich.) before being named Director of the Office of Budget Management from 1981-85, then pointed to everyone’s favorite whipping boy, the Fed. Though, the Fed said this week it will ease back on QT, or quantitative tightening, to placate the market.
“We’re going to borrow $1.2 trillion, the Fed is dumping $600 billion so it’s $1.8 trillion of homeless bonds that will be looking for a home in a fixed-income market and that is going to cause a real collision, a real shock to the system that will bring the stock market down,” he said. “The stock market is based on cheap debt and the era of cheap debt is over. The stock market is based on central banks all over the world buying trillions of paper (money).
“That’s done and we’re now in QT. The Fed is there, the ECB is there; even the Bank of Japan sooner or later has to stop printing (money). So we’re in a different era and this bubble can’t last, and Trump made a terrible mistake embracing it.”
Stockman then shared his thoughts what the Fed should do moving forward, but it is a suggestion the markets — and Trump — certainly would not like: normalize interest rates.
“Well, what I think they should do is not what they’re going to do,” he said. “We should normalize interest rates. We had nine years running of negative interest rates in real terms after inflation — in other words the federal funds rate was below the CPI (Consumer Price Index). That’s crazy. It’s never happened in history. It’s the same thing as telling Wall Street that for eight years running, you can roll your carry trades at no cost and gamble away, speculate away until your heart’s content. That was totally wrong.
“Secondly, when they expanded their balance sheet from $900 billion, which is where it was on the eve of the crisis (in 2007), to $4.5 trillion, that was the most radical, crazy monetary experiment in history. No one would have even imagined that happening 10 years previously. So they need to shrink their balance sheet quite substantially in order to allow the bond market to actually price supply and demand in an honest way.”
An interviewer then called Trump the CEO of one of the greatest economic expansions in U.S. history and that’s when things really got dicey. Stockman basically took a bazooka to the president, insulting his economic policies and his voting base of “Walmart” shoppers.
“He’s a total economic ignoramus. He has no idea what he’s doing,” Stockman said. “He is leading the country into the jaws of a gargantuan fiscal crisis. He basically is starting a trade war and putting tariffs on the U.S. economy that are going to hit his red-state voters right between the eyes. They go to Walmart every week and they’re going to see the prices, hundreds of billions in price increases either directly from the tariffs or indirectly. And he’s bashing the Fed when they’re belatedly trying to do the right thing.
“His program is 100 percent wrong and he is basically a dangerous man in the Oval Office who is leading the whole system to dysfunction and paralysis, and we’re going to have a debt ceiling crisis coming up in March and I don’t see how this system is going to function. The shutdown that just happened was a totally wasted crisis and the big one is going to happen when they have to raise the debt ceiling.”