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Eric King:  “Andrew, what made you come out publicly and say that QE was a failure and apologize to everybody?  What made you come out and do that?”


Huszar:  “I left the Fed in 2011. ... I maintain great respect for a lot of the people inside (the Fed), and so I struggled for a long time to come out and speak publicly about it.  But in the end I spoke out because I believe that QE, while initially well-intentioned, has really allowed the US to kick the can down the road with respect to major structural reform that has to do with its economy.


I think the financial crisis should have been a pretty significant wake-up call for the country, and yet five years after the peak of the financial crisis I think our economy looks pretty similar to where it was (after the 2008/2009 collapse), most importantly with respect to a banking sector, which has only become more concentrated and larger....


Continue reading the Andrew Huszar interview below...




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“So I think a lot of what the Fed has done has enabled us to basically avoid doing much about these problems.”


Eric King:  “What we’ve seen so far has been a bit of chaos around the world as the Fed announced the tapering.  Talk to me about how chaotic this is going to get.”


Huszar:  “I think when you see the Fed go from having a balance sheet of $800 billion to $4 trillion in the span of five years, and pump over $4 trillion of cash into Wall Street, you’ve seen a lot of cash liquidity flowing throughout the world.  I would argue that the markets have become addicted to the liquidity that the Fed is pumping out there.


So when you pull back any punchbowl this big you are going to see substantial issues.  We saw this first last summer when the Fed initially talked about a taper and we saw a $5 trillion global equity market selloff.  In January, in anticipation of the second QE cut by the Fed, you saw more volatility in the emerging markets.


I think what you are going to see in 2014 is the unintended consequences of this stimulus hit as the Fed tries to pull it back. ... At this point the Fed effectively owns 30% of the US Treasury market, it owns 10% of the housing market, it has become what is effectively the biggest hedge fund in the world.


You have a lot of hawks on the Federal Open Market Committee (FOMC) who are confident they can pull back (on QE).  I think the Fed will be surprised again -- by what happened in the emerging markets, for example, spreading to the US markets.  I believe the idea that the Fed would finish QE by the end of 2014 is unrealistic.


The volatility in the markets will be a rollercoaster ride.  If the Fed really sticks to its guns, I think we could see a 20% - 30% selloff in the US (stock) market pretty easily in the course of a few months. ... If the market really believed that central banks around the world were going to step away meaningfully, and there was no so-called ‘Greenspan/Bernanke/Yellen put’ in the market, I believe you could see far more dramatic declines.”


Eric King:  “Let’s come back to the fact that the Fed has this large trading room.  We basically have academics, and I’m summarizing, but we have academics now running the largest hedge fund in the world, and to me that sounds like a recipe for disaster.”


Huszard:  “Yes.  It’s one of the big unintended consequences of QE ... You have the Fed now driving markets.  You have the Fed now buying 90% of the new issuances in the mortgage market.  So there is a real question as to what happens when the Fed steps away.


But there is a larger issue, which is that, as you point out, there are people within the Fed who have market experience, but these are not professional traders.  And now the Fed has really expanded its involvement across the credit curve in the largest bond markets in the world.


That requires a level of expertise they don’t have. ... So there is a real question as to whether the Fed really is qualified to be playing this role, and whether it is going to be able to manage exiting what is the most ambitious experiment in financial market history.”


Andrew Huszar’s remarkable audio interview is available now. The information above is just a small snippet of this candid discussion by the man who apologized for QE and you can listen to by CLICKING HERE.


IMPORTANT - KWN will be releasing interviews all day today and this weekend with former Fed member Andrew Huszar, Andrew Maguire, Egon von Greyerz, Michael Pento, and many others.

 

© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

 

The audio interviews with Andrew Huszar, Michael Pento, Art Cashin, Rick Rule, David Stockman, John Mauldin, Eric Sprott, Bill Fleckenstein, Egon von Greyerz, Dr. Paul Craig Roberts, MEP Nigel Farage and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.


Eric King

KingWorldNews.com

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