Stockman, a former Republican congressman from Michigan and President Ronald Reagan's director of the Office of Management and Budget, wrote on his blog recently that the world is currently "in the midst of a lunatic financial mania" in which central banks around the globe have addicted national economies to endless printing of money -- so much so that any hint of ending "quantitative easing" negatively affects stock markets.
"If you need evidence that we are in the midst of a lunatic financial mania, just consider this summary from a Marketwatch commentator as to why markets are ripping higher this morning," Stockman wrote.
He quotes the commentator:
"The dovish comments from both Fed Chairwoman Janet Yellen and People's Bank of China Governor Zhou Xiaochuan are giving markets a big lift, and in the absence of negative data or news, I imagine this will continue to buoy the markets throughout the session," Erlam said in emailed comments.
Yellen said gradual hikes are likely this year, but that the central bank will move cautiously....... the PBOC governor said he saw "more room" for China to ease policy if the economy stays soft and inflation continues to weaken.
The central bankers don't see what they've done
The MarketWatch piece was in reference to Chinese concerns of a "strong" U.S. dollar, but clearly the dollar's strength -- and that of the Chinese yuan -- are based on less-than-rock-solid premises these days.
Stockman noted that any hint of backing away from pouring billions of fiat dollars into markets, would cause stock prices to fall, and then the "robo machines and day traders" would implement massive amounts of "buy orders," causing stocks to reflexively jump skyward.
He went on to note that another financial analysis site, Zero Hedge, captured the market motion and reaction in an accurate graph. So, Stockman points out, when central bankers are talking, 98 percent of monetary policy is being made; if they are moving their jaws, "then buy!"
Only, as in all monetary policy, what goes up eventually comes crashing down -- especially when the upward trajectory was built on shaky policy.
What this means is that this third immense financial bubble of the current century will keep inflating until central bankers stop banging the "stimulus" lever or the bubble finally crashes under its own weight. The latter will surely happen, eventually-- - and the potential carnage can be readily approximated.
All the warning circuitry is gone
Indeed, he notes that, during the last financial bubble, equity markets globally ballooned to a peak of $60 trillion before free-falling to barely $25 trillion in the post-Lehman Bros. fiasco. Now, markets have been inflated again -- this time to the tune of about $80 trillion "by the sheer recklessness of the world's central bankers." However, this time, the underlying economic climb has been even more phony -- and unsustainable.
"[I]t amounts to little more than a temporary outgrowth of the explosion in public and private credit since late 2008," Stockton wrote. "At the same time, the bubble has been spread to virtually the entirety of the world's $200 trillion credit market owing to the nearly universal embrace of massive central bank bond-buying under QE.
"Yet do the central bankers have even the foggiest clue that they are sitting on a potential $50-$100 trillion financial market implosion? That the mother of all meltdowns lurks around the corner?" Stockman asked rhetorically.
No, he says; they don't even seem aware of what is happening -- of the monster they have created. All of the normal market hardware has been ripped out of the current global system, so there is no circuitry in place to warn of impending disaster.