John Hussman is back at it with his notoriously bearish views on the economy.
The bubble expert warned in a new note that a US financial crisis is already baked-in.
Here are Hussman’s top 9 quotes on the Fed and what’s to come for the economy.
John Hussman is known for his notoriously bearish views about the stock market and economy.
His latest forecast feeds that reputation as he warns a financial crisis is already baked-in for the US economy following the Federal Reserve’s “deranged” policy experiments.
In July Hussman predicted that stocks could end up crashing 64% peak-to-trough this market cycle thanks to a trilemma of high valuations, poor investor sentiment, and overextended market technicals.
Hussman – who called the 2000 and 2008 stock market crashes – said in a recent note that the central bank has issues other than just high inflation: “Unfortunately, a couple of percent in above-target inflation is probably not the central problem the Fed will face in the next few years.”
He flags balance-sheet woes as well as future episodes of inflation, and trillion-dollar losses for commercial banks and the Fed itself.
Here are Hussman’s top 9 quotes in a new note.
1. “While the Fed has suspended the “zero interest” part of its experimental policies, it has been extraordinarily slow to reduce its balance sheet to a size that would allow it to manage interest rates without hundreds of billions of dollars of annual public expense.”
2. “The Fed has done only half its job, and seems insistent on maintaining a ruinously bloated balance sheet.”
3. “The real problem is that a decade of experimental distortion encouraged unprecedented speculation in every conventional asset class, not to mention fringe speculation in assets detached from any standard of value, including meme stocks, pictures of bored monkeys, and digital Pokémon posing as ‘currency’.”
4. “As with every similar episode across history, the unwinding of this bubble in the form of financial crisis is already quietly baked in the cake.”
5. “In defending the deranged and experimental notion of an ‘ample reserves regime,’ the Fed is defending continued misalignment between monetary aggregates and economic output.”
6. “It is defending exactly the element of monetary policy that contributed to a decade of yield-seeking financial speculation, forced $8 trillion of uninsured deposits into the banking system, encouraged the passive acceptance of enormous government deficits, leaves in place the fuel for future episodes of inflation, and has already produced trillions of dollars of losses both in commercial banks and in the Fed itself – invisible because the assets are not marked to market.”
7. “Even as the Fed battles the flames of a fire-breathing dragon, it insists on keeping that dragon as a house pet.”
8. “Activist, experimental and unsystematic policy, the hallmark of Federal Reserve policy for more than a decade, destabilizes expectations, promotes yield-seeking speculation, distorts financial markets, drowns the banking system in uninsured deposits, and subjects every corner of the economy to needless risk-taking, typically ending in chaos.”
9. “We don’t expect the current episode to end much differently. We do hope the Federal Reserve learns the right lesson this time around, but we’re fully equipped to navigate the financial markets even if they don’t.”
Read the original article on Business Insider