Cash and Canned Beans

“I invest in anything that Bernanke can’t destroy,” said David Stockman in 2010, “including gold, canned beans, bottled water and flashlight batteries.”

Mr. Stockman — the boy-genius White House budget director during Reagan’s first term — has refined those thoughts in a new book called The Great Deformation: The Corruption of Capitalism in America. By way of introduction, he penned a think piece in Sunday’s New York Times beneath a provocative piece of graphic art declaring “Sundown in America.”

“His article,” says our Byron King, “reads like the past 12 years of Daily Reckoning emails from Agora Financial.

“There are 50 shades of Bill Bonner’s gray musings about kinky abuse of the economy, by all manner of politicians and world-improvers. Plus, Stockman channels other AF writing concerning how screwed up is the U.S. Federal Reserve (Fed) and how our government has wrecked the almighty dollar.

“We now have an economic ‘boom, bust, doom & gloom’ story with legs — and of course it drips with the holy water of top billing in the Old Gray Lady.”

“By default,” Stockman writes in the Times, “the Fed has resorted to a radical, uncharted spree of money printing.

“But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

“The modern Keynesian state,” Stockman writes elsewhere in his piece, “is broke, paralyzed and mired in empty ritual incantations about stimulating ‘demand,’ even as it fosters a mutant crony capitalism…”

It’s impossible to see where Stockman’s going without understanding where he’s come from.

If you have a modest degree of political awareness, you recall he got fed up with the “deficits don’t matter” mindset of the Reagan White House — which drove the national debt from below $1 trillion the day Reagan took office to $1.8 trillion by the time Stockman quit in 1985. He wrote a bridge-burning memoir in 1987 called The Triumph of Politics — perfectly timed as the Iran-Contra scandal heated up and the national zeitgeist was one of Reagan fatigue.

Stockman’s post-Washington career was rather more conventional: He went to work on Wall Street.

First he joined Salomon Bros. Then he became a partner at Pete Peterson’s Blackstone Group. Then he started his own private equity outfit called Heartland Industrial Partners. He did well enough to buy a home in Greenwich, Conn. — where he still lives.

Along the way, he made himself CEO of a company he formed under Heartland — which ended up filing for Chapter 11. In 2007, the feds indicted him, claiming he tried to defraud investors in that company. In early 2009, they decided they didn’t have a strong enough case to get a conviction, so they dropped it.

Hmmm… We don’t recall Stockman making dire proclamations about canned beans and bottled water before the feds started giving him a hard time. Just sayin’.

“When the latest bubble pops,” Stockman concludes his jeremiad, “there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”

Dave Gonigam

The Daily Reckoning