Reagan Budget Director and Newsmax Finance Insider David Stockman warns that the Federal Reserve’s policy tactics have bushed the U.S. stock market to the brink of disaster.
"As soon as the markets realize that the Fed and the ECB are out of ammunition, it's over," Stockman recently told CNBC.
"I think we're in an extremely unsafe world — we've never been here before," he said.
"Global deflation is going to turn into a recession worldwide," said Stockman. "They're out of ammo to deal with it," he said.
"I would liken the Fed to a blindfolded arsonist. Armed, dangerous and lost," the former director of the Reagan-era Office of Management and Budget said.
"They can't possibly believe that they're going to wait out this cycle at zero interest rates at an economy that's at peak debt," he said. "I think they'll hike one more time this year or they'll make an excuse why they can't," he said.
"The world economy is drifting into recession and we are not decoupled," said Stockman. "We are not exempt."
The S&P 500 has staged a more than 10 percent comeback since February's low but Stockman said broad swings are nothing but the beginning of a long and burdensome bear market, CNBC explained.
"We're still in no man's land. We've had a dead cat bounce. It's been strong," Stockman said. "The only thing left is to bury the cat!"
Stockman's target on the S&P 500 is 1,300, a 36 percent drop from Thursday’s open of 2,038.
UCLA economics professor Roger Farmer is among those who maintain that a prolonged slump in the market can actually help cause a recession or, conversely, help boost economic growth when stock prices enjoy a long-lasting rally.
"If the market goes back up again soon, as it did after last August, I think we'll be OK. I don't think there will be a major recession. On the other hand, if the market stays down or goes down further and stays down for a month or two months or three months, then you want to start worrying," he told the L.A. Times
. "If the market stays down and we all stay unhappy and depressed about what's going to happen, that will be self-fulfilling."
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