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Stockman Warns: The Bubble Will Burst Soon

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David Stockman, who served as President Reagan’s budget director, is warning that federal dollars are inflating the U.S. economy and that it will burst. Stockman wrote an essay on the topic, and it was published in The New York Times on Sunday.

Stockman Warns: The Bubble Will Burst Soon

He said that even though the “Main Street economy” is still weak, the government’s fiscal policies aimed at easing the financial crisis have just pushed “phony money” into the stock markets. According to Stockman, when the bubble bursts this time, the government will not be bailing companies out as it did back in 2008.

Bloomberg Television interviewed Stockman today, and he told the network, “We’re borrowing money and burying the future generations in debt.”

Currently the Fed is buying $85 billion in assets per month and keeping its key interest rate close to zero while attempting to lower unemployment under 6.5 percent and keeping inflation under 2.5 percent. In Stockman’s view, the result of these policies is “the greatest bond bubble in history.”

One of Stockman’s biggest policies when he was part of the Reagan administration was supply-side economics, which involves cutting income tax so that the economy would grow, thus, increasing the government’s revenue. However, in Sunday’s essay, he said such a practice would only help the non-wealthy.

Stockman also named some major figures in U.S. history and said they contributed to the problem, like President Franklin Delano Roosevelt, who he said weakened the gold standard back in 1933 and former Fed chairman Alan Greenspan, who he said kept interest rates at too low of a level for too long.

He believes investors will kick off a major sell-off whenever the Fed begins to take assets off its balance sheet. While current Fed chairperson Ben Bernanke has said that the government will make a gradual, smooth exit, Stockman remains convinced that its fiscal policies are “unsustainable” and that they have “brought America to an end-stage metastasis.”

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