Stockman: 'Lunatic' Fed Policy Has Created Huge Global Asset Bubble

Posted: 11/26/2013 9:22:30 EST
            

The actions of the Federal Reserve have created a massive bubble not just in U.S. stock prices, but in a variety of assets all across the world, contends David Stockman, who served as the director of the Office of Management and Budget under Ronald Reagan.

"The Fed is exporting this lunatic policy worldwide," Stockman told CNBC, referring to the Federal Reserve's asset-purchasing program. "Central banks all over the world have been massively expanding their balance sheets, and as a result of that there are bubbles in everything in the world, asset values are exaggerated everywhere."

"It's only a question of time before the central banks lose control, and a panic sets in when people realize that these values are massively overstated," he said.

"This is a financial asset bubble, and you can see it in the valuations if you want to look at it," Stockman said. "The Russell 2000 is hitting another peak today—it's trading at 75 times reported trailing earnings. That makes no sense. It's up 43 percent in the last year, but earnings of the Russell 2000 companies have not increased at all. It's up 230 percent from the bottom. Mainstream America is not doing that well."

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