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David Stockman to Moneynews: Fed is ‘Wrecking Our Free Enterprise System’

By David Nelson and Dan Weil   |   Sunday, 28 Apr 2013 11:32 AM

Federal Reserve Chairman Ben Bernanke and his allies at the central bank haven’t merely
embarked on a misguided policy — they’re a threat to U.S.-style capitalism, says former White House Budget Director David Stockman.

The Fed now determines the level of short-, medium- and long-term interest rates, he told
Newsmax TV in an exclusive interview. “It’s all rigged. This is administered price-setting by 12 people who are not even elected.”

Financial markets now determine prices and “drive the entire capitalist system,” says Stockman, author of the new book, “The Great Deformation: The Corruption of Capitalism in America.”

Editor’s note: To order ‘The Great Deformation’ at a great price — Click Here Now.

And it’s the Fed that sets prices in financial markets. “All of the trading today is not based on price discovery as we talk about in free markets or discounting cash flows and earnings in the future,” Stockman says, who headed the Office of Management and Budget from 1981 to 1985 under President Ronald Reagan.

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Editor's Note: A full, unedited version of this interview is available exclusively to Financial Braintrust Alliance subscribers. Visit www.fbtalliance.com for more information and to sign up.

“They’re all trading against what they think the overlords at the Fed are doing.”

Bernanke is “a Keynesian money printer who believes that debt, debt and more debt is the elixir that helps economies grow and people become wealthier,” Stockman says.

“That is utterly wrong doctrine, and it’s nevertheless in the mind of the guy who’s running a system. And he has four or five colleagues who believe the same, and they are dangerous, and they are wrecking our free enterprise system.”

The notion that we don’t have inflation now is off base, Stockman says. “The issue isn’t inflation of goods and services,” he says. “There is another inflation called asset inflation.” And that’s running rampant, Stockman says.

“When you put the rate on the Treasury’s so-called 'risk free bond' at 1.7 percent, below the inflation rate, you have created ultra-cheap money that causes all kinds of bad behavior throughout the economic system,” he says.

“Traders speculate massively with cheap money. Congress says, we don’t care about deficits, we can borrow five-year money today at 70 basis points.”

Blame for the country’s economic woes can be spread around evenly, Stockman says. “Do not trust Washington or Wall Street.”

Editor’s Note: Put the World’s Top Financial Minds to Work for You

As for Republicans, they “used to be the party of fiscal rectitude, and yet after the big mistakes we made in the Reagan era with the huge deficits, which shouldn’t have happened, Republicans began to say deficits don’t matter and became the free lunch party of tax cuts,” Stockman says.

That put them into competition with “the free lunch party of spending and welfare on the
Democrat side,” he says.

The result: “We end up with $17 trillion of national debt,” Stockman says. “Blame both parties.”

The economy and financial markets have seen three bubbles burst in the last 13 years, Stockman says. First, there was the dot-com bubble that crashed in 2000, then there was the real estate bubble that crested in 2007.

“Then Bernanke tried to restart it. We got the Lehman crash” in 2008, Stockman says. “Now, they’re back doing the same thing, and, if you look around, you see all of the same speculative behavior.”

Editor’s note: To order ‘The Great Deformation’ at a great price — Click Here Now.

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