By Greg Hunter’s USAWatchdog.com
Former Reagan Administration budget director David Stockman says the biggest crash coming is not going to be in the stock market. Stockman warns, “I think we are headed for a central calamity. The central banks of the world have been on a 20 year campaign to massively expand their balance sheets and intrude into financial markets in ways that were never before imagined. In the process, they falsified every asset value there is from overnight money all the way to 30-year bonds and the stock market. Everything now is trading off the central banks, but the central banks have hit the end of the road. They have printed so much money and created such a massive global bubble that we are now in the process of that bubble fracturing. The central banks are now beginning to become confused and panicked about what to do. The Chinese have no idea what to do with their $28 trillion credit bubble and that house of cards in China. Our Fed is now on the verge of another meeting where they are debating if 80 months of 0% interest rates is enough. That is crazy.”
Stockman, who also had a 20 year career on Wall Street, says enormous amounts of global bond debt will never be repaid. Stockman explains, “That’s why I say the financial system is booby-trapped with debt bombs waiting to explode. I use the 100 year Brazilian bonds as an example, but there are trillions of dollars of this stuff all over the place. You know the central bankers pretend that they don’t see any bubbles. These people are not only bubble blind, they are bubble deaf. They have no capacity to understand the explosive nature of the financial markets that they are toying with.”
Stockman goes on to paint a grim picture and says, “What happens when the financial breakdown comes is there is a great margin call. Everybody says ‘I want my money back and I’ll take your collateral if I don’t get it back. If I do take your collateral, I will sell it for whatever price I can get and cut my losses.’ So, this is truly a house of cards. The whole pyramid of debt and what we call hypothecation and rehypothecation of financial assets, that is the real bubble. That’s what people don’t focus on enough. Sure, you can think of stocks that are a bubble, like Tesla and its current price of around $250, or the biotech index which is trading at hundreds of times earnings is crazy. What’s really crazy is all of this debt that has been created has been turned into collateral and borrowed against at a very high rate. The whole thing is very unstable and tottering as we speak.. . . Much of this collateralized credit that has been created is a confidence game. It is a daisy chain, and when the confidence breaks and they start to unwind the chain, the amount of debt outstanding will shrink. That will create tremendous broken furniture in the financial system.”
How do you protect yourself? Stockman says, “The place to go in my view is cash. Stay short and liquid because we are going into deflationary collapse. We are going into a great reset in the financial markets where inflated asset values are going to be marked down tremendously, bond prices and stock prices. As a result of, that there will be great opportunity after the dislocation runs its course to buy things much cheaper than they are priced today.”
Stockman thinks the whole system unwinds sometime before the 2016 Presidential race is finished.
(There is much more in the video interview.)