“EVERYTHING THAT MATTERS IS HEADING SOUTH…NOTHING THE CENTRAL BANKS ARE DOING IS SUSTAINABLE”
David Stockman: “We’re headed for a very severe monetary crisis and period of great instability — the very opposite of what has been experienced for the last six or seven years, when these markets have been effectively tranquilized by the central banks and their massive quantitative easing and intrusion into financial markets. But it’s going to change because we’re reaching the point where they (central banks) are out of dry powder. I don’t think the central banks have infinite power. I don’t think they can keep interest rates suppressed forever if confidence is lost.
“Remember, there are trillions of dollars of bonds out there. There is something like $225 trillion of total debt in the world (public and private), and $90 trillion of that is traded in one form or another.
“They (central banks) are not going to be able to control markets indefinitely if people who are on leverage start to lose confidence in the regime and reduce their positions and liquidate their portfolios. Who is going to buy it? If the central banks go back in an even greater way with quantitative easing, particularly the Fed, I think it will scare the world to death and it will be totally counterproductive.
“So I think they’ve painted themselves into a corner. The printing press can’t run red-hot indefinitely, and if they try it there is ultimately going to be a huge and negative reaction in what’s left of the markets.”
Eric King: “David, we are seeing negative rates in so many countries in Europe. Of course, in the U.S. we could ultimately see negative rates. How long can this charade continue?”
David Stockman: “No one really knows. That’s the problem. We are in such uncharted waters. None of this has ever been tried before. None of this is sustainable. It defies every law of common sense and sound economics and finance. Therefore, you are building up a larger and larger combustible element in the system that sooner or later will blow.
“This is the final spasm of a dying bull market that has been entirely fueled by central bank money printing. But if you look at the underlying trends both in the domestic and in the global economy and the outlook for earnings, everything that matters is heading south and the real global recessionary forces are just getting started.”
[from DAVID STOCKMAN’S CONTRA CORNER]
As always, posted for your edification and enlightenment by
NORM ‘n’ AL, Minneapolis