David Stockman: The Central Bank Madmen Are Raging

The global financial system has come unglued, and the opening waves of competitive currency devaluations by Japan and China are bound to wash up on U.S. shores, according to David Stockman, White House budget chief during the Reagan administration.

In a column on his Contra Corner blog, Stockman said spend-thrift central bank policies globally – from the U.S. to Europe and Asia – have set up a bout of industrial deflation that is bound to be devastating.

“In short, there is a tidal wave of industrial deflation coming down the pike — owing to two decades of world-wide central bank financial repression that has fueled vast mal-investments in mining, manufacturing, transportation and trade," he said.

“That, in turn, will trigger a monetary race to the bottom by the central banks — a race that is already under way owing to Japan’s Halloween Massacre of the yen. Soon the rest of East Asia — and especially China — will have to join the exchange rate plunge or find their export based economies hitting the shoals,” Stockman predicted.

Stockman was especially critical of fresh vows by the European Central Bank (ECB) and China last week to pump in even more monetary stimulus to keep their economics from sliding into recession, a step he said that amounted to “monetary heroin” and that pushed the S&P 500 up a leg to 2,070.

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