David Stockman warns that President Donald Trump’s tax-reform plan could combine with Federal Reserve policy to spark a stock-market plunge.
"There is a correction every seven to eight years, and they tend to be anywhere from 40 to 70 percent," Stockman recently told CNBC.
"If you have to work for a living, get out of the casino because it's a dangerous place," said Stockman, the Reagan administration's director of the Office of Management and Budget.
Stockman puts a big portion of the blame on the Fed, and its ultra-loose monetary policy.
"This is a bubble created by the Fed," he said. "We're heading for higher yields. We are heading for a huge reset of pricing in the risk markets that's been based on ultra-cheap yields that the central banks of the world created that are now going to go away because they're telling you that they're done," said Stockman.
"This market at 24 times GAAP earnings, 21 times operating earnings, 100 months into a business expansion with the kind of troubles you have in Washington, central banks [are] going to the sidelines," he said.
"There's very little reward, and there's a heck of a lot of risk," said Stockman.
Stockman predicted that Trump’s business-friendly tax reform bill, which was unveiled last week, won't prevent a damaging sell-off. "This is a fiscal disaster that when they [Wall Street] begin to look at it, they'll see it's not even remotely paid for. This bill will go down for the count," said Stockman.
He said White House economic adviser Gary Cohn and Treasury Secretary Steve Mnuchin "totally failed to provide any detail, any leadership, any plan. Both of them ought to be fired because they let down the president in a major, major way," Stockman said.
"You get a black swan in the old days, or maybe you get an orange swan now, the one in the Oval Office who can't seem to stop tweeting and distracting the whole process from accomplishing anything," Stockman said of Trump.
Investors have also pinned hopes on Trump’s tax reform plan, which envisages lowering corporate tax to 20 percent, Reuters reported.
“There is a sense of optimism that something will get done on corporate tax reform now that healthcare has been finally put to bed, if you will,” said Nadia Lovell, US Equity Strategist, J.P. Morgan Private Bank.
“The fact is that you’re also seeing a proposal to include a reduction of individual tax rates ... so we think that the consumer will have more dollars to put to work in the economy.”
For his part, renowned economist Art Laffer told Newsmax TV on Friday that Trump's budget blueprint is pro-growth.
"It panders to the Democrats by not cutting the highest tax rates," Laffer told "Newsmax Now" host Bill Tucker in an interview.
"I don't see any reason why anyone would vote against this tax bill," Laffer said.
"It's really pro-growth," he added. "It panders to the Democrats by not cutting the highest tax rates which should be cut as well.
"It's a very pro-growth," he added. "This should really rocket-ship the economy.
"Really gets growth rates way, way up."
Trump announced his budget outline Wednesday in Indianapolis hours after Republican congressional leaders presented the plan on Capitol Hill.
"I'm a Kennedy Democrat who's a Reagan-Trump Republican in economics," Laffer told Tucker. "Kennedy said the best form of welfare is still a good high-paying job.
"There is nothing like economic growth.
"Growth solves all sorts of problems, not only economic problems," he added. "It helps control opioid problems. It helps control suicides.
"It has huge ramifications when you have families that have good, high-paying jobs and prosperity.
"Riots will go way down," Laffer said. "All secondary and ancillary benefits occur."
(Newsmax wires services contributed to this report).
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