Economist and fund manager John Hussman says the potential for deep market losses is frighteningly high now.

“A broad array of observable evidence suggests extraordinary strains in Europe, and abrupt though expected deterioration in U.S. economic activity,” Hussman writes in a note to investors.

"The key question - in view of extreme credit market strains in Europe,
and accelerating economic deterioration in the U.S. – is why the S&P 500 continues to trade within a few percent of its April bull market high."

The answer is simple, says Hussman. Investors are scared to death of missing the widely anticipated market advance that they expect to follow a widely anticipated third round of quantitative easing.

Good economic news may be a relief for investors, but bad economic news in this context is just as much of a relief because it brings forward the anticipated delivery date of the sugar, Hussman notes.

"The follow-up question, however, is that if more QE is widely anticipated, and a market advance is widely anticipated to result, isn’t that the precise definition of an event that is already priced into the market?" he says.

“The Federal Reserve certainly has policy options, but those options have no material transmission mechanism to the real economy.”

In an exclusive interview with Newsmax TV, Republican congressman and
presidential candidate Ron Paul said the Federal Reserve’s policies are "very biased against the middle class.”

“It’s been well known that if you destroy a currency, there is a natural transfer of wealth from the middle class to the very wealthy,” Paul says.