Reagan Budget Director: 'Mad Men' at Fed are 'Out of Control'

— -- At a time of national fiscal crisis, Ronald Reagan picked David Stockman to fix the federal government's budget. Today Stockman says the U.S. is speeding down a path to fiscal ruin -- and that extending the Bush tax cuts will only hasten the looming catastrophe.

"This is not 1981," the former director of the Office of Management and Budget said on 'This Week' in an exclusive debate with Rep. Mike Pence, R-Ind. "This is not 'morning again in America.' We have drifted now for 30 years," Stockman told anchor Christiane Amanpour. "Both parties, unfortunately, became free lunch parties: Republicans cutting taxes any time they had a chance, never doing anything about spending; Democrats digging in to defend everything that was there. As a result, we now have this massive deficit."

"We're now becoming the banana republic [of] finance, printing -- the Fed, these mad men who are out of control at the Fed are printing -- new money equal to 100% of the debt that we're issuing each month. This will not end well," Stockman said. "It's going to end in a disaster."

Stockman said that extending all the Bush tax cuts would be a bad idea. Pence disagreed.

"I don't think higher taxes is going to get anybody hired. I think raising taxes in the worst economy in 25 years is a profoundly bad idea," Pence said.

Pence, who is the third most powerful Republican Congressman, explained that outside of tax cuts, a number of programs had to be examined. "For Americans under the age of 40, we've got to put everything on the table in the area of Medicare, Medicaid, Social Security," Pence said. "We've got to reform these entitlement programs. They are threatening the fiscal vitality of future generations of Americans."

"Is that enough?" Amanpour asked Stockman.

"Well, no, not nearly enough. … The Republicans have been at bat for thirty years and they've whiffed on everything. Social Security needs to be means-tested right now, not for benefits in 2030," Stockman said. "Right now for the top one-third of beneficiaries who have private income." He also said Medicare need to be scaled back "drastically" and that Defense spending had to be reduced.

"Even if we do all that," he told Amanpour, "we still have to raise revenue."

"The way we're going to put our fiscal house in order is you have to cut spending now," Pence said. "Everything has to be on the table. ... But you can't balance the budget on 9.6% unemployment," he said. "The last thing we should do is allow a tax increase on job creators in this country."

"Look, David Stockman is a really famous guy and a thoughtful guy, I just disagree with him vehemently," Pence said.

"Two years after the crisis on Wall Street, it has been announced that bonuses this year will be $144 billion -- the highest in history. That's who is going to get this tax cut on the top, you know, two percent of the population. They don't need a tax cut. They don't deserve it. And, therefore, what we have to do is focus on Main Street and that means getting our house in order fiscally, not tax cuts that we can't afford," Stockman said.

Stockman explained that raising taxes is normally "a bad thing to do," but that the United States "is in such dire shape that we have no choice but to accept the negative trade-off of some harm to the economy to start paying our bills," he said. "Otherwise, we're dependent on the Chinese, we're dependent on OPEC, we're dependent on a bunch of hedge-fund guys to buy our debt and this game is about over."