Central Banks Caused Inflation, Debt Ceiling Deal Is ‘Total Scam,’ Reagan Economist David Stockman Says

The Federal Reserve building in Washington, D.C., on March 19, 2019. Leah Millis/Reuters

The inflationary environment gripping the U.S. and global economies was driven by central banks worldwide distorting the economy through fiat credit expansion, resulting in sky-high inflation and financial bubbles, according to David Stockman, the former director of the Office of Management and Budget under President Ronald Reagan.

During the coronavirus pandemic in 2020 and 2021, governments and central banks unleashed immense fiscal and monetary stimulus and relief packages, flooding the marketplace with trillions in liquidity. Then, after claiming that high inflation was transitory, policymakers abandoned this view, reversed course, and raised interest rates from historically low levels.

“So you have to understand that the big problem in the world today is the Fed, the central banks, all of them have sort of gotten in some big money printers’ convoy,” Stockman said on EpochTV’s “American Thought Leaders.”

The Fed has boosted the benchmark federal funds rate by 500 basis points since March 2022, up from nearly zero. The tightening cycle lifted the target range to its highest level since the global financial crisis in 2008. Other central banks, from the Bank of Canada to the European Central Bank, have adopted similar tightening mechanisms.

Because of everything that has transpired before, during, and after the pandemic, Stockman recommended a “house cleaning from top to bottom” at the Fed and other central banks.

“We also need to recognize that [it] was all of this easy money, these ultra-low interest rates that enabled Congress to spend like there was no tomorrow to build up the national debt,” he said.

Unsustainable

But while these pandemic-era measures have eroded Americans’ paychecks and purchasing power, the expansive policies also facilitated the federal government’s accumulation of enormous debt, leading to the current debt limit challenges, according to Stockman.

“None of this was really sustainable,” he said. “It didn’t represent what I would call sound economics, or sound money, or sound public finance. It was all kind of a fantasy. And now you’re going to have to deal with the consequences.”

Since the COVID-19 public health crisis began, the national debt has skyrocketed by about $8 trillion, and approximately $7 trillion was added to the national money supply.

The House of Representatives passed the bipartisan debt ceiling agreement crafted by President Joe Biden, House Speaker Kevin McCarthy (R-Calif.), and their teams of negotiators. It would suspend the debt limit through Jan. 1, 2025.

Seventy-one Republicans and 46 Democrats opposed the Biden-McCarthy package. Members of the GOP caucus argued that it doesn’t go far enough; the progressive wing of the Democratic Party countered that it went too far.

House Speaker Kevin McCarthy (R-Calif.) speaks in the Rayburn Room after the House vote on the Fiscal Responsibility Act at the U.S. Capitol on May 31, 2023. Mandel Ngan/AFP via Getty Images

Stockman, the bestselling author of “The Great Deformation” and “The Great Money Bubble,” described the plan as “a shell game” and “a total scam.”

“They didn’t save anything. They actually spent a lot more money to save a little bit,” he said. “But on net, in terms of the big picture that we’re talking about here, it’s a total scam. This is what the bill is riddled with: scams. Scam after scam conjured up. That’s all there is in here.”

Despite criticism from a chorus of Republicans, the GOP leadership has stated that this is merely the beginning of the party’s broader efforts to restore fiscal responsibility in Washington. Republican leaders have touted the Congressional Budget Office’s (CBO) latest report that estimates that the statutory caps on discretionary funding for fiscal 2024 and 2025 would be equal to $1.59 trillion and $1.606 trillion, respectively.

But Stockman said he doesn’t think this package addresses the fundamental long-term contributors to the budget and drivers of the national debt: defense, entitlements, and interest.

Defense spending in fiscal 2024 was capped at $886 billion. Biden’s 2024 budget proposal forecasts that cumulative deficits will total about $3.1 trillion by 2033, but the CBO projects that the deal will trim federal interest payments by $188 billion. Entitlement spending was left intact.

“That’s over 85 percent of the entire projected spending stream of $80 trillion over the next 10 years,” Stockman noted, adding that these measures “accomplish a rounding error at best.”

Reiterating former Libertarian congressman Justin Amash’s recent assertion, Stockman said he believes the Fiscal Responsibility Act merely “kicks the can down the road ... another two years.”

Sweeping Changes Needed

In the end, Washington will need to make sweeping changes and use new tools to address budget policy. The debt ceiling is the only leverage left for U.S. officials, Stockman noted, but neither side will do anything drastic as long as the establishment media repeatedly warns of a “debt default bogeyman” that will trigger a financial crisis.

It will also be difficult because of the “self-licking ice cream cone,” as officials will continue to justify spending money to support a cause, which is “the problem that we have today,” he said. The only way to rectify it is through grassroots political revolution and imposing term limits—Stockman proposes six years in the House, one term in the Senate, and six years for a president without reelection.

“That is a sweeping change,” Stockman said. “That is a change in the basic rhythm and structure of how our political system works. And it may sound a little radical and impossible, but unless we do something like that, the system isn’t going to change.”

The debt limit bill will now head to the Senate, and leaders are urging the upper chamber to pass the agreement as soon as possible.

Treasury Secretary Janet Yellen said that the deadline to get a deal done is June 5 because that is when she estimates the department will have insufficient resources to cover the government’s obligations. The Daily Treasury Statement highlighted that the Treasury’s cash balance dipped below $38 billion on May 30.