Former Washington Insider Critical of Current Financial Regime

As the website for his newsletter states in his biography, David Stockman is the "ultimate Washington insider iconoclast."

Once a congressman from Michigan and the director of President Ronald Reagan's Office of Management and Budget, he switched gears and put in 20 years on Wall Street.

Now, as the author of David Stockman's Contra Corner (contra for "contrarian"), he highlights his own thoughts on the world of finance and monetary policy.

In a recent interview with Streetwise Reports, he said there is much to be critical of at the moment.

"I don't buy the main street line that you're going to get from The Wall Street Journal or in the New York Times or (on) CNN," Stockman said. "I think they're fundamentally wrong and that the world is not a very good place at the moment because governments are running very bad policies . . . (on) monetary, regulatory, and foreign policy."

Inflation: Depends on the Fed

When it comes to taming inflation, Stockman's answer at first sounds like those other news outlets: It depends on what the Fed does.

"If we have a big change in central banking, and we get back to sound money, there's no reason why inflation can't be tamed, and we can get back to something close to zero," Stockman said. "On the other hand, if we continue the same kind of policies we've had since . . .  Greenspan took over the Fed, we're going to have periodic bouts of inflation. As far as the eye can see, they're creating too much money."

For the last decade, there have been low interest rates with inflation still running higher at some points.

"Over a sustained period of time, you had (a) negative real cost of money," he said. "That just doesn't work. It gives the wrong signal to all players in the market households that borrow too much (and) Wall Street speculators got way too leveraged."

Interest rates should stay high until the economy clears "all the excess liquidity" of that borrowing out of the economy.

"But that isn't what they're doing," Stockman said. "Every time they (the Fed) have a monthly meeting, they're sort of winking and nodding, trying to give to the market that 'the cavalry is just around the corner."

Stockman said he thought it was a bad sign that we don't have the Fed chairman and a chorus of members saying, "we know we overdid it, we went too far."

"If they really wanted to get inflation back towards zero, that's what they should be doing," he said. "And, of course, that's not what they're doing."

Fiat Currency: The 'Weaponized' Dollar

When it comes to fiat money, Stockman said that although the "central banks of the world" are in charge of the world's money and set the standard, "I would like to think there could be an alternative money (to) arise out of this mess."

Cryptocurrencies like Bitcoin were supposed to fulfill that promise of moving away from government or central bank money.

"The problem is, there is so much excess liquidity in the world, there's so much easy credit, that even the attempts to create sound money got taken over by the speculators," he said. Those speculators "are just looking for short-term trades and think they're smarter than everybody else in the market. That is not the sign of new sound, alternative money being born. It's unfortunate."

Stockman said the Fed "should not be running the financial systems of the world," as their "winks and nods" dominate the market.

"You need honest price discovery and financial markets," he said. "In other words, the price of money, like the price of popcorn, should be set by the market supply and demand."

Stockman said that out of all of the currencies, the dollar is still doing better than other major currencies, calling it "the cleanest dirty shirt in the laundry."

He also said that the dollar system has been "weaponized" by "warmongers in Washington" with sanctions like the hundreds of billions of dollars of Russia's assets seized after the invasion of Ukraine. They use "the international financial system to reward or penalize people that don't do their bidding," he said.

"We never should have empowered the Treasury Department of the United States to get into the foreign policy and sanctions business," Stockman said. "When you weaponize the monetary system, when you weaponize the financial transaction, mechanism, and clearing system of the world economy, you're asking for big-time trouble."

Gold Still the Ultimate Money

Of course, gold is the "ultimate money," he noted.

"It's the one money that existed before governments manufactured money before central banks rose to their current stature and prominence and took over the financial system," Stockman said.

The price of gold hit a new all-time high of US$2,449.89 per ounce on May 20 but has since corrected some.

Some are predicting a prolonged and substantial gold bull market. Adam Rozencwajg, managing partner at Goehring & Rozencwajg, predicted that prices could go as high as US$5,000 to US$7,000 an ounce before it's all over.

While gold is still a traditional "safe haven" for many traders, Stockman said there's a major shift partially driving the rise this time: Central banks diversifying their portfolio holdings because of the weaponization of the dollar.

"Central banks, particularly the People's Bank of China, and to some extent India, and obviously Russia, they're saying we're doing to diversify our holdings," Stockman said. "One of the ways they're going to do that is to get out of dollars entirely and substitute other currencies or gold."

He said there is "pretty good evidence that the central banks, or the non-Fed central banks, have been buying pretty substantial amounts of gold in recent months. And, of course, that's one of the things that is helping to lift the price."

But Stockman noted that "despite some short-run nuances and differences, gold is a good core asset, both as a safe harbor and as an insurance policy for people's financial portfolio, as well as an asset that over time will appreciate."

Contra Corner

Born in Fort Hood, Texas, Stockman received his bachelor's from Michigan State University and pursued graduate studies at Harvard Divinity School. He currently lives in Aspen, Colorado.

According to the Contra Corner website, it was created to be "the place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked."

He publishes the newsletter daily, except for "occasional travel or brief vacations."

You can see a sample of Stockman's newsletter here or sign up here.

Important Disclosures:

1. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
2.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

For additional disclosures, please click here.