Stocks in the United States will soon see their values eviscerated because of the Federal Reserve’s disastrous policies, warns David Stockman, the former Reagan White House budget director and author of “The Great Deformation.”
Speaking in an interview with CNBC on Monday, Stockman likened the U.S. central bank to a “blindfolded arsonist” because the Fed is “armed, dangerous and lost.”
The contrarian writer explained that the Fed can’t believe in the idea of waiting out the present cycle at near-zero interest rates in an economy that faces an astronomical debt level. Due to this, Stockman believes Janet Yellen and her cohorts will either raise interest rates one more time in 2016 or come up with an excuse as to why they can’t do it.
For the rest of the market, meanwhile, they’re on thin ice because of incompetence at the European Central Bank (ECB), a steep drop in earnings growth and ineptness at the Fed.
“As soon as the markets realize that the Fed and the ECB are out of ammunition, it’s over,” Stockman said. “I think we’re in an extremely unsafe world — we’ve never been here before.”
He alluded to Japan, China and South Korea as examples of this, citing the double-digit declines in exports in the first quarter.
“The world economy is drifting into recession and we are not decoupled. We are not exempt,” Stockman averred. “We’re still in no man’s land. We’ve had a dead cat bounce. It’s been strong. The only thing left is to bury the cat!”
Stockman concluded that international deflation will metastasize into a “recession worldwide,” and the central banks of the world are “out of ammo to deal with it.”
Despite Stockman’s dire warnings of doom and gloom, the Fed as well as the market seem pretty confident that the central bank will impose a couple of rate hikes this year. Others also feel that the Fed will have no other alternative to raise interest rates to combat skyrocketing price inflation that will eventually arise due to the money-printing since the economic collapse.
What is this fascination with growth. Is a business really doing bad if they are able to provide products and services, make payroll and only make the same profit they did last quarter or last year. I am living on a fixed income in retirement and love recessions. Prices fall to where they should of been in the first place. Price inflation is lowering people’s standard of living every year wages do not keep up. Enough already.
2 Reasons.
1. The economy must grow as fast as the population in order to provide the same quality of goods and services to a greater number of people.
2. The economy must grow fast enough to pay back interest on loans and lines of credit. New money is printed as debt, so each new dollar requires a percentage of growth to pay for itself, for the interest owed on its creation, sort of like a giant interest pyramid scheme.