Scott Horton Show - Just the Interviews - 11/11/22 David Stockman on the Economy and the Misplaced Fear of China

Episode Date: November 18, 2022

Scott is joined by David Stockman to talk about the economic issues facing the world today. To start, Stockman explains where the American economy stands today. He argues that the crash of 2020 represents the next stage in a 50-year evolution of the boom-bust cycle. They also touch on the labor markets, which Stockman argues are not doing as well as the news would have you believe. Next they turn to China, where Stockman says an accelerating slide back towards central planning that’s all built on an absurd level of debt should dispel the idea we’re headed for a world run by Beijing. He also debunks the myth that China has been waging an effective economic war on the U.S. since the 1990s. Instead, Stockman says America’s economic troubles are all the Fed’s fault. Lastly, Scott and Stockman take a step back and look at how the dollar is faring on a global scale.  Discussed on the show: David Stockman’s Contra Corner David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. He is the author of Trumped!, The Triumph of Politics, and his history of the financial crisis, The Great Deformation: The Corruption of Capitalism in America. This episode of the Scott Horton Show is sponsored by: The War State and Why The Vietnam War?, by Mike Swanson; Tom Woods’ Liberty Classroom; ExpandDesigns.com/Scott; and Thc Hemp Spot. Get Scott’s interviews before anyone else! Subscribe to the Substack. Shop Libertarian Institute merch or donate to the show through Patreon, PayPal or Bitcoin: 1DZBZNJrxUhQhEzgDh7k8JXHXRjYu5tZiG. Learn more about your ad choices. Visit megaphone.fm/adchoices

All right, y'all, welcome to the Scott Horton Show. I'm the director of the Libertarian Institute, editorial director of anti-war.com, author of the book, Fool's Aaron, Time to End the War in Afghanistan, and The Brand New, Enough Already, Time to End the War on Terrorism. And I've recorded more than 5,500 interviews since 2004. almost all on foreign policy and all available for you at scothorton dot for you can sign up the podcast feed there and the full interview archive is also available at youtube.com slash scott horton's show you guys on the line i've got david stockman and of course you know he was a congressman and was famously ronald reagan's budget director back in the 1980s quit over the cost of militarism by the way, and was a successful Wall Street guy for a long time. And now he gives financial advice, if you call it that.

Maybe it's just a lot of ranting and raving at David Stockman's contra corner.com. And by the way, even though mostly he's an economics guy, he's this good of an anti-war guy as you could find. See, for example, his archives about Obama's dirty wars in Syria and Ukraine and all of his great coverage debunking Russia gate, single aspect. But anyway, we're here to talk about the economy today. Welcome back to the show. How you doing, David? Great to be with you, Scott. And I guess ranting and raving might be the word, but when you consider what's happening in the world today, I think you might conclude that it does deserve some ranting and raving because, you know, we're so far off the deep end in terms of fiscal policy, money printing at the Fed and economy that I think is in pretty

dire shape. The impact that this, you know, proxy war against Russia and the Ukraine is having on the entire global economy and especially the commodity markets, when you put all that together, you know, we've got a confluence of negative economic factors that I haven't seen for a long time. And I've been watching this since the late 1960s. Yeah. All right. So if I can start a something like a beginning here, I know that you are at least associated somewhat with the Austrian school. And that's sort of a complete laissez-faire take on free market economics. And if I understand this kind of thing, right, essentially the idea is that pretty much any government intervention in the economy is going to cause some kind of distortion that's going to lead to some further consequences later. Even if you say, hey, the price is worth it because of whatever reason or whatever that, essentially, there's always going to be this correction. It's always going to cause some distortion. And I bring that up first here because I think that actually

is a pretty unusual way of looking at things, right? Most people look at things through a political lens first. And it's been since FDR really right that the financial capital of America was move from New York to D.C., and economic decisions are made by the political economy, really, in D.C. And elections are really referendums on the president's performance when it comes to how the economy is doing. And this kind of thing, that's sort of how everybody looks at it. So, but then from this more Austrian laissez-faire take, looking back at the last couple of years, I guess all you see is just hammer blows from all different directions against the natural order of pricing structures and economic flows and this and that. When I read your articles, that's essentially what you're complaining about, is that everything is all out of whack compared to where it would have been otherwise, which would have been better.

Is that about right? Yeah, I think that's right. And what it says is you need to occasionally, anyway, go back to first principles, back to square one, and understand that essentially prosperity, economically, and liberty, you know, thrive on the free market and in a free society, and they become circumscribed and diluted, if not in danger. when the state intervenes and grows and mushrooms and envelops the private economy. Now, that doesn't mean you have to be a raving absolutist about, you know, state intervention ever at any time, but it's a good benchmark or standard to start with.

And when we start with that standard, and look what's been happening, you know, for a long time, for decades, as you say, going back to the New Deal. But especially in the last couple of decades, you can understand why prosperity is disappearing, why personal liberty got so imperiled during the COVID hysteria that people were almost locked in their homes by orders of the state, and that all of this, you know, is compounding when you add things like the Green New Deal and the fanaticism about the climate crisis. I mean, if you look at the real science as opposed to the political propaganda, there is no climate crisis. There

is climate change. It's been going on for four and a half billion years, but it's not something that requires massive increase in state intervention in the form of all of these anti-fossil fuel policies in order to protect the future of the planet. The planet will take care of itself, but the policies will dramatically impair, you know, the private economy and capitalist prosperity as a result of these anti-fossil fuel policies on top of all the other interventions we're doing. So now we have massive federal borrowing and deficits. We have a central bank that's been totally out of control for decades, printing money at a reckless, fantastic rate. We have tremendous regulatory intervention, perhaps symbolized recently by the COVID lockdowns and

the antifossil fuel climate policies. But you put all these things together, and you've got a pretty potent brew of damaging intervention. And you've reached the point where the state is becoming all powerful and all enveloping and all dominating. And there's a tremendous cost, obviously, that comes with that. Yeah. All right. Now, I know this is a lot, but I know you can handle it. Can you sketch for us real quick here? The typical boom bus cycle. Alan Greenspan print some money. We get some bubbles. We have a crash. We do it again. We have a housing crash instead of dot coms, this and that, something like that. If 99 and 08 are sort of typical. But then tell me how different it is that you had the recession

this time wasn't really because the last time, sorry, most recently was not because of raising interest rates. It was because of this forced lockdown was essentially this massive deflationary program that smashed a lot of bubbles and crashed a lot of prices at the start of the lockdowns anyway. But then they embarked on this massive monetary expansion to sort of fill in the black hole that they had caused there. Sort of like 2009 on meth kind of thing, if I understand it right. But so can you just like if you, if you were to sketch sort of how the typical business cycle works and compare it to the 2020 crash. And now, you know, if you were to sketch sort of how the typical business cycle works, and compare it to the 2020 crash and now the boom that's now crashing, the 22 crash.

Like, this is the fastest business cycle we've seen in a very long time, right? Right. And it's all so artificially induced, right? Yeah, you're covering a lot of important territory there, but I think you have to look at it in three stages. First, it's what I call your grandfather's recession. That's what I grew up with in the 60s and 70s. you know, we had one in 1970, we had another bad one in 74, 75. There were actually two of them in the early 80s when Volcker was desperately attempting

to rein in the double-digit inflation that, you know, came out of the Jimmy Carter era of the 1970s. But the point is, those were kind of classic Keynesian-style recessions where excessive Fed stimulus and credit expansion caused too much, you know, borrowing and lending and spending in the private economy, the Fed finally reached the point where it had to rain in its policies by drastically raising interest rates and reducing its injection of credit into the economy. and you got recessions that were led by housing and capital goods spending and eventually consumer spending as well. Now, that was, let's call it phase one.

In phase two, after Greenspan and the mid-90s, we got into financial bubbles. In other words, the economy globalized so much that the Fed, Fed Reserve Credit Expansion didn't just create a boom in the domestic economy or in housing, but it actually exported the implicit inflation to the entire world economy, and it temporarily became disguised by the fact that we imported back massive amounts, of cheap goods from China and Vietnam and Mexico and so forth. So the cycle changed, and what came out of it was a massive inflation of financial assets because the goods and services inflation was being suppressed and diverted into global trade.

But those financial bubbles first, the dot com in 2000, and then, you know, the housing finance bubble. It wasn't so much we overbuilt housing, it's that we overvalued it from, you know, all the subprime mortgages and the rest of it. But that was 208. So we got two pretty, one moderate recession and one pretty severe one at the beginning of this century that were driven by collapsing financial bubbles that eventually spilled over in the real economy and you went back through the ringer again. Now, phase three happened in 2000, basically when Washington panicked, and I would, I insist on blaming Trump for this. He had the control dial, so to speak, and if he had stood up to Fauci and the rest of these, you know, scientific fakers, we never would have gone into two weeks, you know, to. flatten the curve, you know, but he didn't have enough understanding of what constitutional government is about, what liberty requires, and what the scientific facts

actually were, which were known even then. There were a lot of experts who were warning against this. We dove into these lockdowns sweeping across the board, nothing like we'd ever seen in peacetime. And by the second quarter, you had a collapse of economic activity that was really startling and we're still digging out from under. But there are two numbers that I think people ought to keep in mind. One is that at an annualized rate, the GDP in second quarter of 2020 shrank by 30 percent. I mean, just an astounding number. Normally, in a bottom of the recession quarter, you might get a shrinkage of 3% or 4% or 5%, but not 30. That tells you how severe and how shocking and sudden this was.

Another statistic that I use is if you look at the, and this is something I use a lot when I analyze the labor market, which, you know, I think. The Fed and Wall Street are totally wrong about it's not that strong at all. But I look at hours worked, not at head counts, but at hours worked, and the BLS actually does provide indexes by industry for hours worked. And when you look at the leisure and hospitality sector, which was ground zero of the lockdowns, restaurants, bars, entertainment venues, movies, sports arenas, etc. The number of hours worked in April 2020 collapsed by 56%. Just startling, that was like 40 or 50 years worth of employment growth

in the leisure and hospitality, domestic services sector. disappeared on a dime suddenly, almost without warning, in April 2020. And that's what triggered the next round of recession. But here's the thing to circle back to your question. And that is, this was clearly a supply-side contraction, utterly different, the opposite of the old phase one kind of Keynesian recession, And the answer to it was for what I call the virus patrol, that is the health authorities that were unleashed by Fauci and the rest of them to get their foot off the neck of the economy, let the economy reopen, let restaurants and bars and gyms and movie houses and so forth reopen, focus. the policy on the vulnerable elderly and people that had, you know, other underlying issues

and let the economy and society go back to work. If you had done that, there was no need for anything else. There wasn't need for the Fed to take its balance sheet from about $4 trillion in March when they declared the original lockdown, to $9 trillion over the next couple of years, there was no need for the three different rounds of stimulus programs, two under Trump, one under Biden, they're equally responsible, that added up to $6 trillion of extraordinary spending that has now just been added to the public debt. There wasn't need for any of that demand side stimulus, either fiscal or monetary, because the problem was on the supply side.

The problem was orders of the state that prevented commerce from happening, prevented people from working and getting a paycheck, prevented, you know, existing businesses that had made heavy investments from providing services to their customer base in public. So we ended up now with an experiment, I would say, in just crazy out of this world fiscal and monetary stimulus that ended up distorting and contorting and twisting the economy in ways that, you know, it would have been hard to imagine even five years ago. We had, first of all, when the lockdowns occurred and nobody could go to the malls or the restaurants or the bars or the gyms, they stayed at home and ordered stuff from Amazon.

And the next thing you knew, there was a massive increase in spending on merchandise goods. It drained the inventories out of the supply pipeline, both warehouses here and the supply pipelines going back to China and other places abroad. And the next thing we knew, we had tremendous shortages of everything because all that stimmy money that wasn't needed and all the money that wasn't being spent on restaurants and other services got sent to Amazon. For goods, you know, people bought three or four years worth of goods in three or four months. And that has created lasting distortions in the economy, and we could go into all those. But it just shows you, and I think I'll stop with that, that when the state gets out of control because it's defined problems or threats that require, you know, big-time intervention, you end up with so much dislocation and distortion in the private economy that then you get another whole round of problems that they try to fix with even more intervention.

It's kind of a self-fueling process. So that's the kind of where we are now. you know, recognize that we have not gone through a conventional cycle that is not your grandfather's boom and bus cycle of the 70s, 80s, and even 90s, and not the financial bubble type cycle of 2002-08, but a, you know, totally unusual and unprecedented supply-side contraction ordered by government, we could probably dig our way out of this problem. But obviously, that isn't what's on Washington's mind. That isn't what's on the Fed's mind. Even now, as it recognizes that it's way behind the curve and has been forced into monetary restraint, even though just months ago, interest rates were zero, and it was buying, you know, $120 billion a month worth of government

security. So, you know, we're in a pretty bad state of affairs. Yeah. So I'll tell you, a few weeks ago, I was invited to talk about some of this boom-bust nonsense on the Kennedy show on Fox, and they sent me this article from Bloomberg News to prepare one of the things we were going to be discussing, you know? And in that article, they say, yes, see, what we're trying to do is we're really trying to restrain the labor market because it's too, too strong and strong labor markets cause inflation. And so therefore, what we want to do is raise interest rates enough where we think if we can cause somewhere between 3.5 to 3.7 million people to lose their jobs, that would be really great progress. That's what we're trying to do because the economy is too hot and too good. And so we're trying to cool it off by raising these interest rates high because those hourly

workers are the cause of all our rising prices. And we have to screw them good. Yeah. Well, you know, that's what's called the Phillips curve, the so-called trade-off between inflation and employment. And it's a lot of damn nonsense. I mean, it is not historical. valid, and it's not logically correct. People working produce output. More output helps to reduce

inflationary pressures, not exacerbate them. So the whole idea that the Fed needs to make 4 million people or 7 million or 3.5 million people unemployed, and that's going to solve the inflation problem, I think is upside down. The inflation problem we have today is because the Fed created way too much financial credit over years, but especially after, you know, as we've been talking about, March 2020. And what they need to do is get interest rates back to some kind of historical normalcy that says after inflation, which eventually will come down, you still have a positive two, three, four percent return to investors. Now, the problem right now, and the reason that the Fed should be raising interest rates, and quite dramatically, in my view, is not so we can make

four million people unemployed. That could be a corollary effect, but that's not the reason. The reason is you're never going to control inflation if you have 7 to 8% year-over-year inflation, which we have even despite all the hoopla yesterday about inflation and the CBI being down to 7.7%. That when you have inflation running, let's just say, at 7% and you have the federal funds rate at just under 4%. then you can do the math. That means that the real rate, the rate, inflation-adjusted interest rate, is negative three. Now, there is no way that negative interest rates historically have ever been correlated

with a non-inflationary, healthy, sustainable economy. So they're raising rates, and they need to, you know, step on the break harder, in my view, to get interest rates back into some semblance of normalcy after decades, but particularly after two years of just crazy money printing and interest rate suppression. When we had interest rates at five basis points, that is the federal funds rate, in the spring of 2020, when they really went to town. with the printing press, the two-year federal note was yielding about 25 basis points, a quarter of a percent.

Today, it's 450. Now, that shows you 4.5%. That shows you how far off the deep end they were at the time, because by forcing the money market rate and the federal funds rate to what they call, the zero bound or to rock bottom, they brought all short-term interest rates down with that maneuver and created, you know, crazy signals to financial actors, both in the financial marketplace, as well as in, you know, the main street economy. Because if you could borrow

money at 25 basis points back then and invest it in a 10-year note or even junk bond that was yielding 150 basis points on the treasury note and say 300 or 400 basis points on the junk bond. That's what all the speculators were doing. It was just making the problem worse. the Fed is finally recognizing that, but it still has a long way to go, not on a goal of putting people on unemployment insurance, but of getting the financial signaling system back into some kind of sustainable, rational position. All right.

Now, in your, first of all, I want to mention these pieces. I'm sorry, I should have said this at the very beginning. beginning. It's part one, two, and three. Can I reprint this at the Institute, David? The labor market ain't strong. Sorry, Hunter, you got a job here, buddy. That's my end. This is such a great piece, and people should really take a look at it. There's so much in there. And including, you take a couple of important swipes at Donald Trump for his protectionist policy when it comes to China. Now, so this is a whole part of a conversation starting now. I call it China, China, China. China, China. Now, remember everybody, this guy was a Reaganite, ain't some liberal. And in fact, it was Obama and Hillary Clinton who came up with the Asia pivot in the first place, wasn't it? But so we have a very hawkish policy, a Cold War policy against China right now. And then under Trump, we had this protectionist policy against them. But there's a very important narrative on the right, and there's got to be some truth to it, that when the Americans sent

Milton Friedman over there to teach them commies about markets that okay sure it helped a lot of people not starve to death like they had been under mouth say tongue but at the same time all they did really was empower this totalitarian state and make it rich enough to challenge us and take over the world and eventually invade California or at least Japan um and so um it was a huge error we should have never Bill Clinton should have never given a most favored nation trade status, and the whole thing was a giant error, and so Trump was right to begin to reverse it by putting all these tariffs on so that we can hem China in. Otherwise, they're going to get out of control. What do you say? There's a lot to unpack there, but I think you start with the big picture in saying,

what is the most important lesson we've learned in the last half century, and once you articulate that, apply it to the China situation, and suddenly the scales fall from your eyes. The important lesson is that communism, centralization and bureaucratization of economic life, doesn't work, it fails, it ends in collapse. That's what we learned. from the Soviet Union. Now, China has a slightly different, let's say more subtle version of the Soviet economy, but at the end of the day,

it is an artificial economy that isn't a capitalist economy that does not have the discipline of sound money and truly competitive markets. But instead, it's one of the great debt-driven bubbles Ponzi schemes in all of history. So if we really believe that sound money is essential in the long run, that you can't print your weight of prosperity, you can't borrow your weight of prosperity, and by the way, if you go to the mid-1990s when Chinese exports really started

to flow big time, they had about a trillion dollars worth of debt on their economy. They now have 50 trillion. Okay. So in less than 25 years, they racked up 50 trillion worth of debt. Well, in the first round, when you do that, you can build a lot of highways. You can build a lot of apartment buildings. You can take a steel industry that was maybe a few million tons at the time or 10, 20 million tons, a billion tons today. But then if you don't have, markets and you don't have sound money and you don't have discipline and you don't have failure. They don't have failures in China. They bail out everything, even worse than what we do. You end up creating what I call a pyramid economy. In other words, you got a lot of capital invested,

but much of it is in totally unproductive applications like pyramids. And soon as or later, the whole House of Cards comes crashing down. I don't know how long it's going to take in China, but I'm not worried about China, you know, and invading the California coast or taking over the world or becoming a bigger GDP than the United States or becoming a military threat. Of course, we spend $850 billion a year on military. They spend, you know, around $100 billion. So I don't know what people are talking about, but even if they continue to spend double what they're spending today, sooner or later, that Ponzi scheme is going to collapse. And, you know, the great threat to the world being alleged today is going to end up in the same boat where the Soviet Union disappeared into the dustbin of history.

1991. And we, but again, because Washington finds it much more amenable to have enemies, because if you have enemies, then there's something for policymakers to do, and there's something for congressmen to do as they travel around the world on their foreign policy junkets. And obviously, there's a tremendous case then for the military industrial complex and a ever-growing defense budget and all of these think tanks and, you know, I call them parasites that plant themselves in the beltway get funded with money that's buried everywhere in the defense and international security budget, and then they use that money to do studies and to generate propaganda that says we need even more, and that China is stealing all of our intellectual property and all the

rest of it. So it's kind of what I once, one guy once called a self-licking ice cream cone, and it's a very dangerous thing. So, you know, that's when you lose track of the the basics. When you lose track of the fundamental, in this case, that it's a Ponzi scheme that's going to collapse and that we don't have to, you know, get on a red alert about a military or foreign policy threat, if you can keep focused on the fundamentals, we would have, I think, a far more rational foreign policy. But there's every reason for Washington to either be blind to the fundamentals or to be ignorant of the fundamentals because that services the short-run interests of lobbyists and defense contractors and, you know, all of the think tanks that exist around

the Beltway in favor of what's called a robust foreign foreign. policy, but it's not robust. It's dangerous. It's going to bankrupt the country in the long run. And it doesn't make us safer or more secure. It simply creates new hot spots of danger in the world as we're now learning in the Ukraine. Hey, y'all, Scott here. Let me tell you about Roberts and Roberts, Brokerage, Inc. Who knew? Artificial bank credit expansion leads to price inflation and terrible. distorted markets. If you've got any savings left at all, you need to protect them. You need to put some, at least, into precious metals. Well, Roberts and Roberts can set you up with the best deals on

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and free shipping on any order over $100. Legal jams, bud, gummies, and the rest in your state. The Hempspot.com. Spell the THC. You guys, my friend Mike Swanson has written such a great revisionist take on the early history of the post-World War II National Security State and Military Industrial Complex in the Truman Eisenhower in Kennedy years. It's called the war state. I have to say, it's the most convincing case I've read that Kennedy had truly decided to end the Cold War before he was killed. In any case, I know you'll love it. The War State by Mike Swanson. Searchlight Pictures presents The Roses, only in theaters August 29th, from the director of Meet the Parents and the writer of Poor Things,

comes The Roses, starring Academy Award winner Olivia Coleman, Academy Award nominee, Benedict Cumberbatch, Andy Sandberg, Kate McKinnon, and Allison Janney, a hilarious new comedy, filled with drama, excitement, and a little bit of hatred, proving that marriage isn't always a bed of roses. See The Roses, only in theaters, August 29th. Get tickets now. All right, now, so a couple more things on China here real quick. just the basic point about offshoring, that there's a billion impoverished Chinese people who will put plastic things together for lower wages than Americans, and there always will be. And if we let big business have their way, they'll just ship every bit of manufacturing over

there. And the American people won't have any jobs. We won't be able to afford the cheap plastic crap they're importing. Yeah. Well, I think, you know, it's not that simple. Offshoring was a big problem. But again, in terms of going to the fundamentals, you have to ask, why did that happen? Did that happen solely because some people in the rice patties of China got organized by Mr. Deng and put into export factories and sent cheap goods the United States? No, that wasn't the whole thing. What happened was we desperately needed to purge the inflation out of the U.S. economy and cost structure beginning in the 1990s that had been generated in the great inflationary waves of the 70s and early 80s because what that did was it raised the dollar cost of production, labor costs and other infrastructure costs. in the United States far, far above where it'd been in the 1970s. Now, during the 1970s, when China was still in the midst of, you know, the great leap forward

and the cultural revolution and all of the insanity of the Maoist era, you know, production couldn't transplant itself to China because it was basically chaotic and disorganized. But by the time the 90s came along and they got new leadership, Mr. Deng in particular, who figured out that Mao was wrong, that political power for the Communist Party does not come from the barrel of a gun, but comes from the end of a printing press. And once he started, you know, that whole massive debt-driven, export and infrastructure-based economy, it meshed with the exact wrong policies at the Fed after Greenspan started to decide that he wanted to be the toast of the town and forget all about the hard money

gold standard that he had advocated for most of his adult life. So the essence of it was we should have had a steady decline in the price level, that is deflation of wages and prices and costs from the early 90s forward so that as China arose, the cost gap in dollar terms between production over there, which has a big cost in terms of supply chain, more inventories, more risk, quality control issues. It's not just a labor differential. But if we had been narrowing the cost gap through deflationary policies with the rising Chinese juggernaut, so to speak, the extent of offshoring that actually occurred in the 500 billion that we now import annually from China would have not happened nearly to the extent that it did.

So the essence of it is the fundamental cause of offshoring was the Federal Reserve, was the idea that 2% inflation or more is a good thing. But when you compounded over decades, the only thing it was doing was widening the dollar cost gap between production and the new export factories of China and production in the bloated cost-inflated factories of the United States. And we ended up with the mess that we have today. Well, Trump had the wrong answer. He wanted an even easier Fed policy. He was always hectoring the Fed for even thinking about raising interest rates. And he wanted them even lower when they were already at rock bottom. And instead, with the protectionist drought, and essentially put a tax on American consumers for buying the goods that Fed policy had caused to flow.

into the U.S. economy in the first place. So, you know, we had a lot of things upside down or backwards, however you want to describe it. And this is just one more example of that very thing. All right. So how big of a shift was it? Like I'm trying to picture in my mind's eye how much trade we had with China before Trump and how much that changed due to his tariffs. And I wonder, like, does it count as a real structural change? The days of, you know, like a shift in the era, like from before they were allowed into the WTO to now after this, you know, that kind of thing. Well, there's two things that you're wanting to measure there. One is the short run impact of four years worth or not even that. It was about two and a half years of Trump tariffs. I don't,

you know, think I don't have the numbers right in top of my head that it slowed down in any appreciable since the import level from China. In the last year, you know, we had something like 500 billion of imports from China, and that was above where it was even before. And did Biden lift them or Biden left them where they were? Well, right now they're still still in place. You know, Biden is allegedly they're having an internal debate. The hardcore Keynesians want to have the import tariffs lifted because that would reduce some inflationary pressure in the CPI, and that would help them not to have to disemploy so many people. But they're still in place.

The bigger issue is if you go back to, say, 1990 or 1995, there is a huge increase in the level of imports from China. would say probably 25 to 30 times bigger imports in 2022 than we had in, say, 1992. So over that 30 years, the goods supply system, the United States has been turned upside down and essentially transplanted to China and now Vietnam as a way station. some of the final assembly got moved to Mexico based on parts that were sourced in China. So this whole labor and cost arbitrage at the end of the day was not free trade at work. It was basically the distorted impact of free money flowing into an open global economy. and causing all of these displacements to occur.

In other words, in the American manufacturer facing 20 years worth a declining cost domestically, would not have been nearly at the disadvantage that they were, let's say, in 2018, when Trump laid on all these tariffs, because the dollar cost gap would have narrowed substantially rather than expanded the way it did. And so, but when you say like, well, they had to kind of reorganize a few supply chains to Vietnam, and if you compare it to the 90s, it's not much.

You're saying it's really, despite all the rhetoric and whatever small or whatever bad effects they were small, it didn't, that Trump's tariffs, now Biden's tariffs, they didn't really make much of a change compared to- No, no. No, that's true, but also where it did on the margin, it simply moved production from the low-cost factories of China to lower-cost factories in Vietnam or even assembly, sub-assembly, final assembly operations in Mexico, and then you had to try to figure out the origin of those products that came from Mexico, which were really, let's say, kits that were made in China but weren't assembled. They were sent to Mexico. And now they cost an extra

$14. Yeah, yeah, that's right. So the whole thing was a huge mistake. It was a attempting to use protectionism against the symptom when you really needed to go to the monetary cause. All of these bad things that we deal with in the economics, inflation, low growth, off-shoring of our industrial base. sooner or later, all of them had a monetary route, a bad money route. But the interesting thing, and I've actually been writing about this today, I'm doing it, is the Republicans somehow don't get it that this is the ideal time to be attacking the Fed hammer and tong for all of the mess that we have in the economy today, the 8% inflation, the soaring, you know, food and energy and other costs that households are trying to cope with, now would be the time to be attacking the Fed and making that a, you know, very salient policy issue when, in fact, they didn't do that. You know, maybe Rand Paul did and good for him. But there wasn't much, in fact, half of the establishment Republicans who've been in the town there for decades because their career politicians, you know, like McConnell, think the Fed is a wonderful institution.

And they don't want to rock the boat because they want Wall Street to keep going up because they'll get more campaign contributions. So the Republican Party, which should be the party of sound money and was before Nixon's, you know, perfidy in August 1971, have, you know, just vacated the fields, have abdicated their number one job is to promote fiscal rectitude in sound money. And frankly, in the last couple of years, they've been doing very little of either. Yeah. All right. A couple more things I want to ask you about here and getting somewhat short on time. Yeah. You're familiar with George Friedman, the chairman of Stratt for, which people say is sort of a shadow CIA, private CIA. And he's an analyst and I guess they do some dirty tricks too. I don't know. But anyway, he gave a famous interview that I'm sure you're aware of to Commerce Sant, where this Russian media outlet, where the famous quote was.

that what happened in the Maidan in February 2014 was the most blatant coup in world history. Yeah. Clearly referring to the U.S. government doing the coup. Yeah. Well, anyway, so I was rereading that whole interview the other day, yesterday. And one of the things he's explaining very patiently to his interviewer is that America's policy is that when anyone gets stronger, we hit them.

And that's why we have to hit Iran, and that's why we have to hit Iraq, and that's why we hit Russia. Russia's getting a little bit more powerful. I don't know what's causing all these upward pressures on energy prices, but it's helping Phil Putin's coffers. And so we have to hit him by making sure to cut him off if we can from his access to the Black Sea by way of Crimea. And if the Chinese are getting a little too big, and that's because the University of Chicago guys taught him like sort of half-assed capitalist economics

and they're doing better than they were before. well, we got to hit them and keep them off balance and we do this and that. And it doesn't matter who's the president, if it's Bush or if it's Obama or if it's Trump. This is American strategy. And yet the thing is, as we were talking about before, part of America's strategy was at least in effect, and I think, David, that they said that they were doing this on purpose. We want to help make China rich and teach these poor starving people about capitalism so that they're not starving anymore and that the more they learn about property and free markets and trade, the more they'll learn about self-government and republicanism and hopefully a brave new future and all of these

kinds of things. Well, that doesn't sound like constantly hitting them to keep them from getting more powerful. That sounds like quite deliberately, at least knowingly allowing them to be more powerful for all the good that comes with it. And it seems to me as a libertarian and not a status that that's what we want, not for the nation states of the world, but for the people of the world, to all be very wealthy and healthy and happy and live long lives. And that it's stupid and crazy to always hit the Ayatollah, and always hit, especially Vladimir Putin, sitting on 7,000 H bombs. But so, you know, I don't know, man, you're a lot more worldly and wise to me, and I'm just kind of a naive kid in my 40s here.

So I wonder if maybe I don't understand that really, maybe George Freeman, is right that if we don't hit all these potentially rising powers from one side or the other all the time to keep them off balance to keep them destabilized to keep them weak then something bad might happen well uh i think you're uh you're spot on in your analysis i agree with it um in fact you know that's the whole distortion that's underway right now we've decided we i mean Washington has decided to weaponize commerce. We put these sanctions on everybody and their grandmother, if they look cross-eyed at something that Washington is doing, you know, from Venezuela, obviously massively against Russia, all kinds of sanctions being applied to China

and then everybody else that, you know, didn't, on a secondary basis, didn't observe our writ about North Korea or the Iranians. I mean, the whole thing is a huge mess. And it's based on the proposition that the state has the right to, you know, expropriate a sense, in a sense, the value of anybody engaged in world commerce if they're engaged in commerce with the wrong country at any moment in time with a country. that is, you know, getting identified or tagged as an enemy or as a rival or something. And that's the real problem today. You know, we went from the forever wars, hot wars, to even worse, forever sanctions wars, which are now beginning to break down the whole world trading system and payment system.

Why would anybody really trust the dollar anymore when, like the Russians, who had 500 billion of reserves parked in different central banks around Europe and United States, Japan, all of a sudden they were, we stole it. We seized a half a trillion dollars worth of Russian central bank deposits because they had, as it turns out, stupidly, trusted the international payment system based on the dollar that had, you know, served the world reasonably well for decades and decades as they, you know, came out from under the autarkic Soviet regime after 1991. So I agree that we shouldn't be hitting everybody, that we should be basically promoting commerce and promoting prosperity everywhere in the world. But, you know, when you have that kind of policy predicate, how do you justify an $850 billion defense budget?

How do you justify 11 or 12 barrier battle groups or whatever we have today? How do you justify all of these little fights we're getting into about irrelevant territory in the Donbass or whether Taiwan is part of China or not part of China, even though historically China's claimed it for three or four hundred years. None of that would be happening if we had the predicate that promoting peaceful commerce is the route to security and prosperity and peace, which surely has been. is all right now so everybody says it's the end of dollar hegemony that all this kicking the russians out of europe to hit them is uh-oh pushing them way too far and now they're adding more countries

to the bricks and they're going to move to a new commodity-based basket of currencies or some kind of thing and that that's when hell will finally be paid by the americans and all of that inflation. They've been exporting all this time. We'll come home and it'll break the dollar and we'll all have a civil war and die. And it's all because, you know, the comeuppance has finally come due as soon as, which is happening right now, that the national governments of the world are giving up and using U.S. dollars for their major transactions between each other, et cetera, et cetera, like that. What's the truth of that and what does it really mean? Well, I think it's probably a little more complicated, but there's some truth to it. In the short run, it's actually working the other

way. The world was so dependent on the dollar, which really wasn't the dollar per se, but it was the fungibility of the dollar in terms of global payments in trade. And as a result of that, Now, as the Fed is attempting to rein in its monetary policy, it's driving up interest rates far more rapidly in the dollar denominated securities than, you know, they're doing in Japan where the 10 years still at 25 basis points or even in Europe where they're way behind us. So right now, there's a dollar shortage in the world. because people have to pay back debts at much higher interest rates in dollars. You know, there's a huge amount, the Chinese developers, for instance, of all these empty apartments buildings that they have, literally millions and millions of empty units,

were funded on the dollar, offshore dollar jump on market. And now, you know, all of these debts are coming due, and there's a scramble for, dollars to pay them back. And that's part of what's happening in the short run, why the dollar is as strong as it is. But if you look at sound money as an overarching principle, then you realize that the dollar may be strong against the yen, which it's up 40%, or it may be strengthening even against a lot, substantially against the Chinese R&B, and certainly it's gone way the heck up against the euro.

It's now at parity. So it may be strong, but it's because it's the cleanest dirty shirt in the laundry of bad money that's being created by central banks all around the world. And in the long run, the problem for the dollar is if the scenario that you describe unfolds and it's used less and less to finance global trade, use less and less as a store of value or reserve asset, it will simply mean that interest rates are far more sensitive to supply and demand in the United States. If we keep these massive budget deficits going and we're, you know, looking at two trillion again this year, it's going to be much harder to finance. Interest rates are going to be higher. Higher interest rates not only will throttle Washington, but they'll make it much more difficult for domestic investment to occur and therefore our economy to grow. You hear that everybody?

It's going to throttle Washington. Man, that's great news. I'm so happy to hear one positive word out of your mouth in this hour, David. Okay. I know that's not what you meant, but I was just trying to think of a good closer here. Yeah. I'm sorry, we're out of time, and, man, I've learned so much. I love talking with you, and I love reading David Stockman's Contra Corner.

I get your emails, and I follow the links every single day over there. That's David Stockman's Contra Corner.com. Thank you again, sir. Appreciate you. Okay. Great to be with you, Scott. The Scott Horton Show, Anti-War Radio, can be heard on K-P-F-K 90.7 FM in LA.

APSRadio.com, anti-war.com, Scott Horton.org, and Libertarian Institute.org.