You're watching...
Former Reagan Budget Director David Stockman on the potential impact of the fiscal cliff and the need to rein in government spending.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
-- but the former budget director going long here to get to the bottom of fixing this mess down there.
David good to have you had to be here what is it is that a clear it is today hill lives and a bump what is it writing it's a thundering day of reckoning.
Told us knew everybody we gifted -- and a Chiron.
Annan to many letters and.
We don't respect.
We've been kicking the can down the road on everything for -- decade so every tax cut tax credit tax stimulus tax gimmick.
That anybody's ever thought of is gonna expire New Year's Eve this year.
A hundred billion of seaquest here on defence and non defence spending will hit.
Unemployment insurance extension which there's millions of people receiving today will stop so when you -- all that up at 700 billion.
It's nearly 5% of GDP on an annualized basis.
It's gonna hit the economy like a ton of bricks there's gonna be broken for -- you're flying.
In every direction and I'm not confident the political system has the capacity.
To deal with the whirlwind.
This massive.
So why other markets so sanguine through all the publicity just focus more an election right now and the starlet are -- thing -- learned about tomorrow -- well the there's no one at home on Wall Street.
These are basically robots trading word clouds being emitted.
By the Federal Reserve or other central banks in the world they trade data today our -- our.
Based on the latest Nuance and word they're not even looking in the serious way at the magnitude of this and at the persistence of this in other -- it won't be a one day event a one time event a one white knuckle.
-- -- -- some of the march Jamie Dimon of JPMorgan Chase says he is marshaling forest this is from earlier today Jimmy Dunn and I want to redirect.
-- -- -- -- fiscal cliff war room commence sooner or kind of stuff.
You know going through a mix we understand all -- -- and what will be prepared me JPMorgan -- survivor fiscal cliff.
And I just think -- terrible policy to allow -- to get close.
Prepared for some Tibet.
Well I think they're prepared but I really do what -- have brokerage firm of an investment and one point have to do to be prepared.
Well you know I'm not sure except to the extent that they have a multi trillion dollar balance sheet all of which will be impacted.
If there's a sell off in risk assets of every class to -- -- and myers' sell off -- a couple of hundred million dollars would you setting aside.
Won't do that cover around the house on a checking account -- it may not be enough but the whole market is now being propped up.
By the belief that the Fed come hell or high water.
Can keep things on an even keel in stable.
And if they ever lose confidence in the Fed that it can keep the bond rate down to one point seven.
They can keep the stock market.
You know operating on fumes.
If they ever lose confidence -- that I think they'll be -- tremendous.
Breakdown of the whole system.
Hours of the Fed is keep in this.
Fictionalized primary so if interest rates were to suddenly soar if it looked like Washington -- -- -- -- defaulting or worse right setting off a spiral of selling on the dot on the dollar.
All boats -- how do you do envision that.
Someday it's gonna happen it's only a question of win the -- December 31 slot I don't know that'll be December 31 because they will find some way tech kick things down -- -- what I -- -- -- six month extension everything except including the upper rate.
Six months let a new president or a -- elected one.
Hash this out in the new year.
What what do you make -- -- you couldn't have that might happen and then that means -- June 30 you're gonna be in the same position you're gonna be in a position regardless of who's elected.
And they'll wait until the last minute but bit of a president who doesn't have a mandate to do anything -- -- elected he says I'm not gonna cut defense what is he talking about is 700 billion dollars were broke.
We can't afford this massive defense establishment.
-- 700 billion every year.
-- left over from the Cold War he said I'm not gonna touch Social Security pledge that that's 800 billion.
It's the heart of the entitlements if you're not going to attack entitlements how you gonna deal with this problem but maybe.
We have to show is a direction.
Right Bill Clinton did that in 1993.
With a plan.
That.
Show.
Real spending slowing.
And deficits.
-- And -- -- solid overnight and announcing he -- alone but he gave the markets a sense of direction and insurance.
If they do that.
Isn't much of the monkey -- their back.
I don't think so because it's -- years later and we've had a party like there's never been a party before.
We are now objectively twenty trillion in debt in other words they say the number sixteen trillion.
But there's so much built into the pipeline that'll be twenty trillion before a new momentum and even get to that.
June 30 date that you're talking about.
Furthermore it is being finance at incredibly low interest rates because the Fed has its thumb heavily on the scale.
In other words we're borrowing today five year money for the treasury -- seventy basis points it's a rounding -- That can't last so if you have twenty trillion of debt.
In interest rates begin to normalize over the next two or three years there's another half trillion dollars -- spending.
That we're gonna have to cope with that isn't even in the numbers today and if you put all of Washington together.
You could put all of Romney's perspective cabinet together if there is one they couldn't come up with 500 billion of cuts.
To deal with the hidden interest this not even on the net cash and they cigarette and on the good sunshine but they have a secret and -- -- Bennett has not carrying fair bet on the area.
