Stockman Warns of Crash of Fed-Fueled Bubble Economy

Screen Shot 2013-04-01 at 9.53.00 AMThe U.S. economy, fueled by “phony money” from the Federal Reserve’s quantitative easing policies, is headed for an inevitable crash, likely “within a few years,” warned David Stockman, who was budget director for President Ronald Reagan.

In an essay published today in the New York Times (NYT), Stockman wrote that Fed policies in the aftermath of the financial crisis have flooded stock markets with cash even while the “Main Street economy” remains weak. The combination, he wrote, has caused an “unsustainable bubble.”

David Stockman, who was budget director for U.S. President Ronald Reagan, is the author of “The Great Deformation: The Corruption of Capitalism in America,” which will be published April 2. Photographer: Douglas Healey/Bloomberg

“When it bursts, there will be no new round of bailouts like the ones the banks got in 2008,” wrote Stockman, a former senior managing director at Blackstone Group LP (BX) and a former Republican congressman from Michigan. “Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.”

Stockman, 66, is the author of “The Great Deformation: The Corruption of Capitalism in America,” which will be published April 2.

Read more: bloomberg.com

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