Tom Keene Talks with David Stockman

You've said our era of fiscal irresponsibility started with Nixon and his escape from Bretton Woods. Can you elaborate?
Basically, since then we've had a monetary policy that's based on endless expansion, endless money printing. It has fueled an enormous amount of debt growth. We have $52 trillion of debt on a $14.5 trillion economy today. That's a leverage ratio of 3.6 times [GDP]. It's off the charts, historically. Go back to 1980 and for 110 years before that and the leverage ratio was about 1.6 times. So we're lugging around about $30 trillion of excess debt.

So how do we steer the U.S. toward austerity?
We are going to have to be honest with the American people and say we are, unfortunately, going to have to pay a lot more in taxes to fund the government.

If we assume austerity, do we presume a sharp markdown to our economic output?
I think we are going to have almost no economic growth for the next 5 to 10 years. We are going to be in debt liquidation. I think unemployment is going to stay exceedingly high. It will go into double digits and stay there.

What about the markets?
I think the stock market is an accident waiting to happen right now. Once the market realizes that the earnings that are being capitalized are phantom, we're going to have a day of reckoning.

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