It has long been argued since the beginning of the Federal Reserve’s quantitative easing program that bubbles are being formed and once they burst then the United States economy would be in worse shape than at the height of the Great Recession.
Peter Schiff, president of Euro Pacific Capital, told Yahoo! Finance on Tuesday that because of the central bank’s bond-buying initiative stocks and real estate are approaching a massive bubble territory. He stated that today’s stock market is starting to become a lot bigger than what the U.S. had in 2008 and in the 1990s.
“The Fed has managed to create a bigger stock market bubble than the one we had in the 1990s and a bigger real estate bubble than the one that burst in 2008,” said Schiff. “Imagine how bad it’s going to be when these two bubbles burst simultaneously.”
“That was the bubble for the 99 percent,” he said. “This is the bubble for the 1 percent. Fewer people are participating. It’s the same in the real estate market. Homeownership rates are plunging. It’s private equity funds buying houses now.”
According to Schiff, the bubbles will eventually pop and that’s why Janet Yellen and the Fed are doing everything possible to “keep blowing air into these bubbles.”
Schiff isn’t the only investor to share this dreary and perhaps unwelcoming market viewpoint.
David Stockman, the former budget director during the Reagan administration, published an in-depth article this week entitled “Housing Bubble 2.0: Here’s why” in which he reiterated that the housing market is in an immense bubble.
“The Fed’s massive money printing campaigns flood the canyons of Wall Street with ZERO-COGS,” wrote Stockman. “That is, our rogue central bank enables speculators and gamblers to amass huge asset positions while paying virtually nothing for the short-term borrowings used to carry them. It’s like making cars with zero-cost steel, tires, batteries, electronics and paints.”
Earlier this year, Marc Faber, the legendary contrarian investor and publisher of The Gloom, Boom and Doom Report, warned that the U.S. is in an enormous financial asset bubble that will inevitably burst at any moment.
“I think we are in a gigantic financial asset bubble,” said Faber in an interview with Bloomberg News. “[The bubble] could burst before. It could burst any day. I think we are very stretched. Sentiment figures are very, very bullish. Everybody’s bullish. The reality is they’re very bullish because they think the economy will accelerate on the upside. But my view is very different.”
Nouriel Roubini, an economist at New York University, also noted that the fundamentals of the U.S. economy are unsound and cannot move forward on its own two legs. He, too, cited the Fed’s monthly injections as contributing to bubbles, particularly in housing and junk bonds. We reported that he forecasted a bubble in bitcoins as well as calling it a “ponzi scheme” and a “lousy” store of value.