At least, that’s the opinion of David Stockman. In an interview on Bloomberg TV earlier this week, the renowned businessman and politician delivered a dire warning to Americans and investors.
“Recession [is] coming to the United States much sooner than anyone realizes,” Stockman says. “We’re closer to the 1930s than anything we saw before.” (Source: “David Stockman: Markets Going to Be Mauled by Bear,” Bloomberg, February 9, 2016.)
The ex-White House budget director painted a powerful negative picture for the global economy and the U.S. economy when he was asked about the current steep downturn in the markets.
“The market will be mauled,” he said. “This is not just the end of a bull market, it is the end of an era.” (Source: Ibid.)
In this worldwide era, he explained, central banks printed money, supported markets, and manipulated and intruded in the pricing of financial assets “like never before,” creating a massive credit expansion that is not stopping.
Since the beginning of the year, all three major U.S. stock market indices have tumbled by approximately 10%. The S&P 500 is down 11%, the 30-member Dow Jones Industrial Average has retreated 10%, and the tech-heavy NASDAQ 100 has plunged 14%. WTI crude oil has shed 30% in 2016 and crashed below $27.00 on Thursday.
Investors have been seeking safe havens in precious metals. Gold futures have rallied 17%, while silver futures have advanced 14% this year.
Stockman put the blame on the mainstream narrative, which he said is dominated by a Keynesian view that the labor market drives the whole gross domestic product (GDP).
“They’re misled by the… phony employment numbers put out by the BLS [Bureau of Labor Statistics] every month,” Stockman told his hosts. (Source: Ibid.)
Recent labor market data shows persistent hiring and near-record job openings. Figures released this week indicated that job openings rose 261,000 to a seasonally adjusted 5.61 million in December, the second-highest level on record. (Source: “A Stronger Jobs Outlook at Builders and Factories Alleviates U.S. Recession Fears,” Bloomberg, February 9, 2016.)
According to the mainstream narrative, a labor market being tightened is a sign that the U.S. economy will keep forging ahead.
“[This narrative] is not only failing, but it is so completely wrong,” Stockman argued. (Source: “David Stockman: Markets Going to Be Mauled by Bear,” Bloomberg, February 9, 2016.)
He said that what employers are paying to “Uncle Sam” daily in payroll tax withholdings has turned negative. On a real basis, after inflation, it has been running in the last four weeks at -4.5%.
“That has always been an indicator that recession is coming… That big pullback is happening in the economy because the whole narrative about how awesome everything is has been wrong,” notes Stockman. (Source: Ibid.)
Since December 16, 2008, the Fed has kept its benchmark interest rate at a range between zero and a quarter percent as a way to bolster the economy.
Stockman blasted Wall Street in general and Goldman Sachs in particular for having failed to predict any of the last seven recessions.
Still, “out of the last three or four huge downturns that we’ve had both on the market and in the economy, the Fed had no clue it’s coming,” David Stockman told the business and financial news channel. “They’re looking in a rear view mirror, and they can’t see what is coming right at us, which is a global deflation.” (Source: Ibid.)