Monday, April 1, 2013

When will the bubble burst?

David Stockman, Reagan's former budget director, who resigned in protest over what he calls the "state wreck" of capitalism by Republicans and Democrats alike, offers this prediction,

If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.  ... 
...there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.

1 comment:

  1. Assuming this is correct, Why would you want to own green pieces of paper backed by the same organization you are predicting will collapse? This is the investor's dilemma - you need to hold your wealth in some fashion - but the majority of mechanisms to do it are predicted to collapse!