Former Reagan budget czar: Collapse of bond market could doom world economy
David Stockman: “We’re Going to Get a Re-Rating of Sovereign Risk” in the U.S.
Wall Street Pit
May 23, 2011
David Stockman, budget director under President Reagan, appeared on Bloomberg Television to discuss the latest developments in the deficit/debt debate. Stockman said there is sovereign risk on the debt of the United States and that both political parties in the U.S. are advocating “de facto default” by pointing fingers at each other. Excerpts from the interview can be found below, courtesy of Bloomberg Television.
On the debt ceiling negotiations in Washington D.C.:
[snip]
“We have to raise revenue, there is no doubt about that. We have to allow the Bush tax cuts to expire for everybody, not just the rich. We have to reset Social Security if we’re doing to make any headway in denting this massive, $6 billion a day borrowing spree we’re on… Neither [political] party is facing up to the real truth or telling the public.”
On when Washington will get to the point of discussing raising taxes:
“I think [Washington will discuss raising taxes] only when we get a major, thundering conflagration in the bond market.”
“For the last 10 years, Congress has been lulled to sleep by the central banks that keep buying all the debt and therefore holding down the real cost of interest on the middle and long term debt that we are issuing every day.
[snip]
On whether there will be a 9/11-style crisis in the economy:
“That kind of crisis would be a vicious sell-off in the global bond market. That could come sooner than people think, because the Fed is getting out of the market with QE2 ending.”
“For the last six months, the Fed has bought nearly 100% of this $6 billion a day that’s been issued. Once they are out of the market, where is the new bid, where is the new demand going to come from? The Chinese are getting out of the market because finally they are having to deal with the rip-roaring inflation they have had. The people’s printing press of China will not be buying as much U.S. debt because of its own internal problems.”
(The article is here.)
Wall Street Pit
May 23, 2011
David Stockman, budget director under President Reagan, appeared on Bloomberg Television to discuss the latest developments in the deficit/debt debate. Stockman said there is sovereign risk on the debt of the United States and that both political parties in the U.S. are advocating “de facto default” by pointing fingers at each other. Excerpts from the interview can be found below, courtesy of Bloomberg Television.
On the debt ceiling negotiations in Washington D.C.:
[snip]
“We have to raise revenue, there is no doubt about that. We have to allow the Bush tax cuts to expire for everybody, not just the rich. We have to reset Social Security if we’re doing to make any headway in denting this massive, $6 billion a day borrowing spree we’re on… Neither [political] party is facing up to the real truth or telling the public.”
On when Washington will get to the point of discussing raising taxes:
“I think [Washington will discuss raising taxes] only when we get a major, thundering conflagration in the bond market.”
“For the last 10 years, Congress has been lulled to sleep by the central banks that keep buying all the debt and therefore holding down the real cost of interest on the middle and long term debt that we are issuing every day.
[snip]
On whether there will be a 9/11-style crisis in the economy:
“That kind of crisis would be a vicious sell-off in the global bond market. That could come sooner than people think, because the Fed is getting out of the market with QE2 ending.”
“For the last six months, the Fed has bought nearly 100% of this $6 billion a day that’s been issued. Once they are out of the market, where is the new bid, where is the new demand going to come from? The Chinese are getting out of the market because finally they are having to deal with the rip-roaring inflation they have had. The people’s printing press of China will not be buying as much U.S. debt because of its own internal problems.”
(The article is here.)
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