Dawn J. Bennett, host of Financial Myth Busting and CEO and founder of Bennett Financial Services, recently interviewed Doug Noland, financial expert, writer and publisher of the Credit Bubble Bulletin. In his latest issue of the Credit Bubble Bulletin, he discusses how the broadening credit slowdown could result in a weaker U.S. GDP and corporate earnings.
In his interview with Dawn Bennett, Noland discusses the volatility of the U.S. financial market. Though Dow and S&P recovered most of their losses in March after the year had gotten off to a rocky start, Noland says, “we’re not out of the woods, by any stretch.”
Noland said, “It was just a few weeks ago that the markets were in the midst of a crisis of confidence in central banking. It appeared that the ECB was out of bullets, the Fed was going to continue to raise rates, the markets were unwinding because of this crisis of confidence. Well, what do you know? Over the last few weeks, there’s been a concerted effort by global policy makers. We’ve seen dramatic steps taken by the Chinese to stimulate their credit system and to stabilize their currency. We saw Draghi and the ECB reverse course and actually increase QE by almost a third, and said that they were going to start buying corporate debt and do other things; basically throwing the kitchen sink at this. And the Fed came out, basically, and they’re in no hurry to even begin to normalize interest rates. So we have this market environment that’s very unstable. When the markets are nervous, there’s tremendous selling that comes across the globe. But then when central bankers get the markets reversed and you have these short squeezes, and then everybody jumps on board the rally; folks can’t miss the rally. So you get this dramatic volatility, and the markets have recovered over recent weeks. But no, we’re not out of the woods, by any stretch.”
Noland says the current state of the market is a sophisticated variety of inflationism. He explained, “The central banks inject liquidity into the markets. And it’s been almost seven years ago, in my blog, that I warned that the crisis response to the collapse of the mortgage finance bubble could lead to what I referred to as the global government finance bubble, a bubble driven by these enormous deficits and this monetization, this money printing by central banks. But I never imagined it would go to this extreme. The problem with inflationism, things always look good when you start to print some money—it helps the economy, it can help asset prices—but you can’t rein it in. And you do become addicted, because you elevate price levels, and if you don’t continue to throw purchasing power, new liquidity, new credit at the system, these prices will start to deflate. And that’s where they are; they’re trapped right now.”
Noland also noted that the U.S. is currently experiencing some major losses in the hedge fund community. “I think, importantly, we have a lot of volatility, unpredictability in currency markets, which again, I think is going to lead to a lot of unwind of leverage. I believe the global bubble has burst, where you have de-risking, de-leveraging, less liquidity, and weakening asset prices, and that feeds on itself. But then again, we can have these short squeezes and these rallies, and during these rallies, it looks like liquidity abundance. But now we’ll just have to wait for the next risk-off and see how quickly again markets become illiquid, because I think they’ll become illiquid very quickly,” Noland said.
To Dawn J. Bennett’s full interview with Doug Noland, visit http://www.releasewire.com/press-releases/dawn-bennett-host-of-radio-show-financial-myth-busting-interviews-doug-noland-publisher-and-writer-676147.htm.