What do you think will be the key economic event – or events – that signal the next serious downturn?
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I think one is obviously China. China is clearly one of the biggest bubbles out there and they have a massive real estate bubble, a massive government debt bubble...where the government is pushing their banks to loan massive amounts of money for projects that will likely never payoff. I think that's clearly part of it.
I think another part of it is going to be, and this will be the tough part, it's going to be psychology. Psychology can just change. It doesn't necessarily have to be event driven. I mean witness 2000. When the Internet bubble popped there wasn't a particular event that kicked off a problem in March of 2000. It's just that psychology changed. When I say that at some point people will change from cheering money printing to fearing money printing that's the kind of psychology change that could happen like the Internet bubble. It just happened. It might not be a specific inflation figure or number, it happens or it could be some combination of a minor change in numbers plus a Chinese problem, plus as I've said a price of gold going up significantly--rising rapidly--all that could cause a change in psychology. Maybe it could have come a little earlier or a little later, but for whatever reason at that point it changes and it becomes extremely difficult for the Fed to control it. The Fed sort of loses credibility.
There could be a lot of reasons the Fed loses credibility. Part of that is just time. I mean, the Fed keeps talking about rebounds in the economy that don't occur, people start to get more and more worried about whether the Fed really can keep the stock market up, because maybe it's had a fall and even though the Fed reacted the reaction did not help the market that much. Those are the kind of things than can cause people to lose faith and when they lose that faith in the Fed--that the Fed can do everything and help keep markets up forever-- that's when the whole thing is going to fall. Exactly what kicks that off, I don't know exactly the sequence, but I think those will definitely be some of the elements of it--change in psychology, China, Gold, and then just time in terms of it's been a difficult economy for a long period of time.