Today David Stockman warned King World News that people need to be prepared for tremendous chaos in global financial markets, and investors need to “get out of harm’s way.” Stockman is the man former President Reagan called on in 1981, during that crisis, to become Director of the Office of Management and Budget. Below is what Stockman had to say in part II of his powerful and exclusive interview.
Eric King: “You’ve talked about large carry trades, and I’m just wondering what your vision is of how those will unwind?”
Stockman: “That’s what’s wrong with zero interest rate policy and keeping the overnight rate at zero. It allows people to buy assets that have any kind of yield or any kind of appreciation, put them up as repo, and borrow 95 cents to 98 cents on the dollar.
This isn’t a natural way for a market to function. The point is that if confidence is ever lost that the Fed and the other central banks of the world can keep this game going, these massive trillions of dollars of carry trades of this sort will unwind….