article by: Jim Meyers/Ashley Martella
Financial guru Robert Wiedemer tells Newsmax that the American economy is facing a double-barreled threat — a recession is “absolutely” coming and inflation will be the “biggest problem” of all.
Wiedemer, managing director of Absolute Investment Management and a contributor to Newsmax’s Financial Intelligence Report and Moneynews, attributes Thursday’s stock market plunge to the government’s ending of quantitative easing — printing money to buy securities in an effort to fuel economic growth.
But he warns that the practice will likely be resumed and will ultimately bring on inflation.
Back in 2006, Wiedemer was one of three economists who co-authored a book correctly warning that the real estate boom and Wall Street bull run were about to end.
In 2009, they returned and wrote the best-selling book “Aftershock,” describing a situation where a massive pullback on our dollar, coupled with an out-of-control government debt fiasco, would begin to topple the American way of life.
The Dow on Thursday fell 512 points, more than 4 percent. In an exclusive interview with Newsmax.TV, Wiedemer was asked what is causing this nosedive.
“A lot of pundits say there’s a lot of bad economic news, and there certainly is, but if you ask me, fundamentally, lack of printed money is doing it,” he says.
“This market basically has never gone up without printed money since the financial crisis.
“Isn’t it fascinating that five or six weeks after we stop printing money in 2010 — we stopped printing on April 1, and by May we had a down market culminating with a flash crash where we were down 360 points for the day. Now five or six weeks after we stop printing money in July, we’re down 500 points for the day. There may be some coincidence, but fundamentally what is happening is a lack of printed money.
“We have some real economic problems, like the bad GDP numbers, but when we’re printing a lot of money we tend to ignore a lot of those things. So that seems to help the market. And frankly when the market goes up it’s kind of a self-fulfilling prophecy because it encourages especially high-income consumers to spend more.”
Asked if the economy is stalled and the nation headed for a recession, Wiedemer responds: “The economy is clearly stalling. Are we headed for another recession? At some point, absolutely. I’m not sure that’s going to be this year, but it’s coming.”
Wiedemer discussed the economic outlook for the average American family.
“I think that for a while we’re still going to see stagnation, and I might add that this market going down increases the likelihood that the Fed’s going to go in and print more money to push it back up, and that printed money will help the market.
“So this down market will probably be offset by Federal Reserve action that will help the economy for a while. But ultimately it’s not going to be good because printed money only goes so far, and ultimately we are going to hit that recession and that’s going to hit Middle America.”
Quantitative easing is a problem in the long run, he adds: “It’s money from heaven, which I say is the path to big problems. Printing money gives you a quick high but it’s followed by a horrible aftershock.
“I think inflation is the biggest problem going. Inflation is like the housing crisis of 2003. Nobody sees that housing prices were getting out of line, and nobody seems to think that when you print a lot of money you’re going to get inflation. I think you will. I think that’s coming.
“And interestingly, if we do have another QE I think you’re going to find that several members of the Federal Reserve board actually vote against it.
“I think there is growing concern that this is going to cause inflation. That said, I think they will still probably pass more money printing, but I think you’re going to find some disagreement at the Federal Reserve indicating a growing concern that it is going to create inflation, and I certainly think it is going to create inflation.”
As for the prospects for a quick rebound in the market, Wiedemer says: “The market does seem a bit oversold so I would normally expect a rebound. But I would put one caveat on that: Tomorrow (Friday; interview was conducted on Thursday) we’ve got the jobs report coming out. If it comes out negative I’d watch out again.”
Both institutional and retail investors are driving the market down, Wiedemer tells Newsmax.
“Institutional investors are starting to get nervous and that’s part of the problem. But retail investors were also getting nervous in advance of the end of QE2 (quantitative easing) and clearly got nervous with all the circus over the debt ceiling.
Democrats and President Obama have been talking about tax hikes. Wiedemer comments: “It’s hard to make the case that tax hikes are good for an economy, especially in a recession or stagnant economy like this. So I would hope that nobody’s going to pass tax hikes right now, and it doesn’t look like Congress is going to go along with that.”
Asked what are the safest places to ride out the downturn, Wiedemer says: “At my management firm we are invested in gold, we are invested in currencies. We certainly like both of those. They are part of any good portfolio. We’ve certainly done well during these downturns.”
Read more on Newsmax.com: Wiedemer: Get Ready for Second Recession, Inflation