Economist John Williams says forget about the so-called recovery, we are headed for recession. Williams contends, “They’ll have a downside revision to this 1st quarter estimate that will take it negative. What we are seeing now is that the outlook for the second quarter is not only weak, but it is also going to turn negative. Two contracting consecutive quarters of GDP give you a recession. So, we have an outlook for recession. This is an economy that I’ll contend that never recovered, and now we are in a new recession . . . in a grand economic contraction. It’s an ongoing economic downturn that we entered into way back in 2005. This is something close to a depression.”
What does this mean for the Fed interest rate policy? Williams says, “It’s not what the Fed wants. It’s not what the market wants. All the speculation about the Fed raising interest rates and returning its policies to more normal functioning, which was the basis of dollar strength since last June, that’s gone. It is going to be very difficult for the Fed to raise interest rates with the economy turning down again. You are already beginning to see some downturn in the dollar, which should be reflected in higher oil prices. That will spike inflation, and you should be seeing higher gold prices. Although they are still manipulated, they should be moving a lot higher.”
Last week, Fed Head Janet Yellen sounded the alarm on “quite high” stock prices and warned of “potential danger” in the bond market. Did Yellen make a mistake or was she sending a warning? Williams says, “I thinks she was sending out a warning. What she did was deliberate. . . . I think she wanted to be in the position that if the stock market crashes, she could say, see I was warning you. . . . I think you are going to have a crash here somewhere along the line that is going to be of a magnitude that will be remembered for decades. . . . I am still looking for a trigger of heavy selling of the dollar and a massive decline in the dollar, a panic decline in the dollar. That could be a trigger for a stock market crash. Any number of factors can do it. You are not going to have much warning when it does come. The panic moves are almost impossible to time because of their nature, but the fundamentals are there.”
On the U.S. dollar, Williams says because the Fed will not be able to raise rates in a sinking economy, the dollar will sink too. Williams explains, “That’s why you’ve seen weakness in the dollar in the last couple of weeks. As the economic outlook has dimmed, and expectations of the Fed raising rates has been pushed off into the future, which is a major factor in the unfolding dollar weakness, it’s still a lot stronger than a year ago, but the downturn in the dollar has started. . . . Unexpected economic weakness adds stress to the financial system. It also tends to widen projections on the budget deficit. It will make Treasury fundings more difficult. The Fed’s going to need to be in there monetizing debt and doing what it can do to prop up the banks. That is all bad news for the dollar. As the dollar weakens, that’s going to be inflationary. As the dollar falls, oil prices will continue to rise. Gasoline prices are going to go higher again. That’s where you are going to see early stages of inflation. As the world gets used to the Fed debasing the dollar, you will see intensified selling. Watch for a massive decline in the dollar, which will be the early roots of hyperinflation in the not-too-distant future.”
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.