David Stockman Warns Investors “Get Out Of Harm’s Way”
Today David Stockman warned King World News that people need to be prepared for tremendous chaos in global financial markets, and investors need to “get out of harm’s way.” Stockman is the man former President Reagan called on in 1981, during that crisis, to become Director of the Office of Management and Budget. Below is what Stockman had to say in part II of his powerful and exclusive interview.
This
isn’t a natural way for a market to function. The point is that if
confidence is ever lost that the Fed and the other central banks of the
world can keep this game going, these massive trillions of dollars of
carry trades of this sort will unwind.
These
things are not sustainable. These things are dangerous policy
aberrations that are creating tremendous risks for the whole global
economy and financial system. As I say, all markets are dangerous
because correlations have gone to 1.0 during a moment of crisis.
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Today David Stockman warned King World News that people need to be prepared for tremendous chaos in global financial markets, and investors need to “get out of harm’s way.” Stockman is the man former President Reagan called on in 1981, during that crisis, to become Director of the Office of Management and Budget. Below is what Stockman had to say in part II of his powerful and exclusive interview.
Eric King: “You’ve talked about large carry trades, and I’m just wondering what your vision is of how those will unwind?”
Stockman: “That’s
what’s wrong with zero interest rate policy and keeping the overnight
rate at zero. It allows people to buy assets that have any kind of
yield or any kind of appreciation, put them up as repo, and borrow 95
cents to 98 cents on the dollar.
“People will sell the
assets, pay down the overnight repo, and there will be no bid to stop
the downward acceleration. The Fed is playing with fire. It’s created
enormously unstable and dangerous markets, and it seems to be either
unaware or clueless as to how much danger it has created in the
financial system.
We’re
taking so much for granted today -- that a $17 trillion debt is no
problem. (Investors assume) we will kind of work our way out of it over
time. Or that a Fed which has taken its balance sheet from a half a
trillion dollars at the beginning of this century to $3.5 trillion today
is trying to help.
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