Things aren't looking good for the financial system and the economy, and the Federal Reserve bears much of the blame, says David Stockman, White House budget director under President Reagan.
"We're in a more dangerous financial environment than we've ever been in history," he tells (Bloomberg TV click here)
"We're in a perilous place. The market is putting in a top, the bottom is falling out of the economy."
The S&P 500 index stands within 3 percent of its record high. As for evidence of a slumping economy, Stockman points to sluggishness in China, Japan and Europe.
"Commodity prices are collapsing, it's a sign of deflation worldwide, and we won't escape it." U.S. consumer prices slid 0.1 percent in the 12 months through January.
"Sooner or later there will be a recession," he notes.
"The market is running way ahead of the real economy. The real economy of the world is grinding to a halt."
Stockman lambasted the Fed for leaving its federal funds rate target at zero to 0.25 percent since December 2008. The central bank has used low inflation as an excuse not to raise rates, Stockman explains.
But, "inflation isn't the issue," he argues. "Interest rates impact all financial pricing in the world — tens of trillions of dollars of cash, stocks and bonds. The Fed has fundamentally distorted all those prices."
The answer is to "get the Fed out of the financial markets and let price discovery work," Stockman maintains.
Interest rates "should never have been on zero, now they have to get off of zero to be credible. . . . Sooner or later we've got to get off the monetary heroin."
CNBC commentator Ron Insana begs to differ. He thinks the central bank should maintain its cautious stance on rate hikes.
"Patience may be a virtue here still, as [some] key metrics of economic stability do not yet warrant a rate hike," Insana writes in a commentary for CNBC.
Inflation still remains far from the Fed's 2 percent target, he notes. The Fed's favored inflation gauge rose only 0.2 percent in the year through January.
And, "the dollar, which has rallied 20 percent since last June, is doing the Fed's tightening work for it," Insana argues. "A 20-percent rally in the dollar has the growth-dampening effect of a full percentage point increase in interest rates."
Bottom line: "the economy is not normal, hence policy should not yet be normalized," Insana says.