Earlier this week, Bob Prince remarked that the American economy is likely on the brink of stagflation.
Prince, who serves as the co-CIO of Bridgewater Associates, delivered his remarks during an interview at the World Economic Forum, a convention of global elites held in Davos, Switzerland.
The term “stagflation” originated during the late 1970s, namely when a massive oil shock transpired under the presidency of Jimmy Carter. Stagflation is typically characterized by slow economic growth coupled with high inflation, the worst of both worlds.
“The markets are under-discounting the inflation picture,” Prince continued in his remarks to Bloomberg Television, adding that “the sustainability, the self-reinforcing of the inflation is not discounted.”
Prince also observed that “the degree of tightening over time is not discounted.”
The financial expert did offer some words of comfort, however, noting that the current banking system boasts the greatest “low-risk portfolio in ages” since the high level of printed money has technically facilitated higher deposits, which in turn have been harnessed for stable deposits, including Treasury Bonds.
“The banking system can sustain the flow of credit into the economy, and the household balance sheets are much better than [they have] been in decades,” Prince noted in response to what would occur “even if the Fed [further] tightens] the purse strings.
The Federal Reserve dramatically increased interest rates by half a percentage point in early May, the most dramatic increase since May 2000. This increase is in addition to the quarter-point increase that occurred approximately two months ago.
Prince is not alone in his views regarding the future of the economy, as other financial pros, including Bill Ackman, the CEO of Pershing Capital Management, have warned about the ultimate cost of soaring inflation.
“If the Fed doesn’t do its job, the market will do the Fed’s job,” Ackman roared.
Ackman also noted that the only possible way to stop “raging inflation” is to either continue “aggressive monetary tightening” or wait for “a collapse in the economy.”