International Man: You have sounded the alarm on a coming financial crisis of historic proportions. How do Trump’s trade policies figure into your view that a crisis is coming?
David Stockman: Trump’s trade policies only create more risk and rot down below.
They’re just kicking the can down the road. With this latest move by the Fed, they have cut the interest rates three times and short-term rates are back at 1.55%. They’re pumping their balance sheet back up—it’s up $300 billion just since September.
The Fed has reverted to all of the things that have created the underlying rot—and that means when finally things break loose, it’s going to be far worse than it would have otherwise been.
Given that they’re kicking the can down the road, they’re building the pressure in the system to really explosive levels.
The trade chaos that Trump’s creating is probably the catalyst that will bring down the whole house of cards.
At end of the day, it’s about the Red Ponzi. The world economy would be not nearly as good as it looks had the Chinese not been borrowing like there’s no tomorrow and building regardless of whether its efficient or profitable.
This has kept the global economy inching forward on a totally artificial basis. You could track it; some people call it the “China credit impulse.” Every time they get into trouble, they turn on the printing press. That causes commodity prices to rise and industrial activity and trade to pick up. It shows up in the GDP numbers, and then everybody gets all excited.
The fear of recession that we had a while back has now abated. We’re back to another global reflation meme, but none of this is sustainable.
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