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The Great Recession of 2007-2009 was neither great nor a recession, says David Stockman, the former Reagan budget director, private equity investor and author.

In his new book "The Great Deformation: The Corruption of Capitalism in America," Stockman says the condition of the world's largest economy is not the result of the recent financial economic crisis, but because of the government's reaction to it. According to Stockman, the last recession wasn't worse than the 1980-1982 recession and the economy now is endangered by the "state and its central banking branch," aka the Federal Reserve.

"The Fed has become a central planning agency for the economy and should return to its traditional role of the 'bankers' bank' rather than an 'activist' economic manager," Stockman said.

"Everything is being micro-managed, maneuvered by them… they will fail and take the private enterprise economy down with it."

In recent months, the promulgated Federal Reserve stimulus program, QE3, has been broadcasted considerably more as Fed Chairman, Ben Bernanke announced the plan to continue the consumption of agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month until there is "sustained improvement in a range of key labor-market indicators."

In an op-ed in the New York Times, Stockman writes that another asset bubble is being created in the stock market that will inevitably burst. But unlike the last financial crisis, the next one won't be followed by corporate bailouts. Once this bubble bursts, "America will descend into an era of zero-sum austerity and virulent political conflict," Stockman writes.

Stockman's analysis and doomsday scenarios are attracting lots of criticism. Nobel Memorial prize-winning economist and New York Times Columnist Paul Krugman calls Stockman out for writing about runaway deficits:

"We didn't have anything you could call a deficit problem until 1980. We then saw rising debt under Reagan-Bush; falling debt under Clinton; rising under Bush II; and a sharp rise in the aftermath of the financial crisis. This is not a bipartisan problem of runaway deficits!"

John Tamney, editor of RealClearMarkets and senior economic advisor to H.C. Wainwright Opinions, writes in his blog that Stockman's protests "have blinded him to the real crisis, which is government spending, not deficits."

At the end of his book Stockman lists 13 prescriptions to help reverse "the Great Deformation" including a six-year term limit for all Congressional members and the president; a limited mandate for the Fed; a 30% wealth tax; two-thirds cut in the armed forces; a balanced budget and means-tested safety nets. These are recommendations that will anger liberals as well as conservatives.

"None of these are going to happen. The crony capitalists who benefit both in Washington and on Wall Street will never let it change."

Although the recent record-setting stock market rally has been somewhat euphoric to investors in recent months, the numbers tell a different story of the current state of the economy. Wages for the working and middle classes have been stagnant for years; median income has continued to decline (not just under Obama), and each month that the FED injects $85 billion of new money into the economy, you get a pay cut, i.e., the value of your take home pay decreases.

The Great Recession may have officially ended in June of 2009 (according to the National Bureau of Economic Research), but many Americans are still extremely pessimistic about the economy. That's the conclusion of a national survey conducted by the John J. Heldrich Center for Workforce Development at Rutgers University [pdf].

Nearly 1,100 employed and unemployed Americans participated in the survey from January 9 to January 16. The survey gauged what the typical citizen's psyche about the economy was.

Here are some of the survey's key findings:

  • Eight in 10 Americans are skeptical that career and employment opportunities will be better for the next generation.
  • More than half of Americans say the economy will not fully recover from the 2007-2009 recession for another six years; 29% believe the economy will never fully recover.
  • 73% of Americans were directly impacted by the recession: individuals surveyed had either lost a job themselves or a family member/close relative had been out of work because of the economic downturn.
  • The majority of survey participants said college would become unaffordable for most young Americans.
  • 56% reported having fewer savings than before the recession.
  • More than half of those who were laid off or lost a job said they cut back on medical treatment or doctor visits.
  • 40% of Americans have borrowed money from family or friends
  • Nearly 25% of participants said they have sought professional help for stress or depression.

These numbers are scary, and even if the sample size was a meager 1,100 people, it does tell us something about current consumer sentiment. Stockman has good solutions to fix this developing crisis, as mentioned in the proceeding paragraphs, but like he says, it isn't going to happen without a political revolution. We must make changes soon, or we all could be in for a scary ride in the near future.

Source: Numbers Don't Lie - Why The Economy Is Not Good