Former US Budget Office president warns economy is nearing final stage of collapse

(NaturalNews) The one-time director of the Office of Management and Budget under former President Ronald Reagan has a dire warning for the world's citizens: The global economy has entered "the crack-up phase" that may lead to the evaporation of much of the West's wealth.

According to David Stockman, who is also a former businessman and GOP representative from Michigan, the mismanagement of the global economy by the world's richest nations is about to reach its zenith and will be preceded, he believes, by four events.

"We're in the crack-up phase. I think there are four big characteristics of that which are going to shape the way the economy and the markets unfold as we go forward," he said on Chris Martenson's Peak Prosperity podcast.

Stockman has predicted that:

-- There will be increasingly desperate moves by central banks;

-- market volatility and losses will increase;

-- deflation will hit industrial and commodity prices; and

-- peak debt will cause decreasing consumer demand, further weakening economic activity.

"I believe that they're lost"

"You're going to see increasing desperation and extreme central bank financial repression because they have gotten themselves painted so deep into the corner that they're lost and desperate," Stockman said. "Almost week by week, we have another central bank -- this week, it was Sweden -- lowering their money market rates into negative territory."

He went on to say that Denmark is in the same situation as Sweden, as is the European Central Bank and the Bank of Japan. Indeed, he noted, "[a]ll of the central banks of the world" are frantically moving interest rates into negative territory.

"I believe that they're lost," said Stockman. "[T]hey're in a race to the bottom whether they acknowledge it or not." He added that he doesn't think China can continue to sit on its currency after it has appreciated more than 30 percent against the Japanese yen "because of the massive bubble of monetary expansion that's being created there."

Increased market volatility and disorder is another sign, Stockman says. "In the last three months," he continued, "the stock market has behaved like a drunken sailor. But it's really just a bunch of robots and day traders that have traded chart points until somebody can figure out what is happening directionally in the world."

He said that the German economy has generally been strong, and that has fueled a boom in China. But the export boom is over, and now the Chinese economy is beginning to stall, meaning Germany and other nations will have their "own problems."

"There is no obvious way for them to dig out of the debt trap that they're in. It's going to get worse over time," he added.

In the third sign, the former OMB director said some factors are working to drive "a huge deflation of commodity and industrial prices worldwide."

There is "something like 4 trillion worth of sovereign debt spread over Japanese issues, the major European countries that are trading at negative yields," said Stockman. "Obviously, that is, one, irrational, and second, completely unsustainable. And yet, it's another characteristic of what I call these disorderly markets." He noted that iron ore prices have collapsed, as have oil prices.

More debt, less GDP

Finally, he says, demand has "clearly" run up against "peak debt."

"We had a tremendous study come out in the last week or so from McKinsey, who do a pretty good job of trying to calculate, track and total up the amount of credit outstanding, public and private, in the world," Stockman said. "We're now at the $200 trillion threshold. That's up from only about $140 trillion at the time of the crisis. So we've had a $60 trillion expansion worldwide of debt just since 2008."

He says that, with all the money printing, especially by the U.S. central bank -- the Federal Reserve -- there is now an additional $60 trillion in debt, compared to only about $17 trillion in additional GDP.

Listen to his interview here.

Read a transcript here.

Sources:

http://www.peakprosperity.com

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