The Newest Stock Market Crash Warning We're Watching Now

While the U.S. markets keep hitting record highs, investors received a major new stock market crash warning sign from one of the world's most famous economists.

Peter Schiff, an outspoken U.S. Federal Reserve policy critic, sees disaster coming in the wake of Donald Trump's presidential victory on Nov. 8.

Talking recently to CNBC, the chief of Euro Pacific Capital said the economic promises that got Trump elected and spawned an impressive rally on Wall Street are the exact same ones that could spark the next stock market crash.

Trump won voters, and later investors, with his ambitious plans to slash taxes and boost infrastructure spending. Trump has said his plans could return U.S. growth to levels last seen in the late 1990s. He promised that higher growth would generate about 25 million new jobs over a decade. That would surpass the 22 million jobs created during the economic boom of the 1990s.

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stock market crash warningIn Schiff's view, Trump's proposed policies will do more harm than good to the economy.

"He doesn't want to tackle, for political reasons, the real problems that are underlying the economy," Schiff said on CNBC's "Futures Now" on Nov. 28.

Schiff predicts that Trump's economic policies (dubbed Trumponomics) will worsen the existing trade and fiscal deficits and produce inflation the Fed will have to solve. This could even force the Fed's hand to reverse course on the U.S. central bank's widely expected interest rate hike next week.

Market odds of a rate hike at the Fed's Dec. 13-14 meeting sit at 95%, according to CME Group's FedWatch Tool. But the Fed's interest rate pace going forward is unclear and may be influenced by Trump's moves.

Here's why...

Trump aims to spend $1 trillion on infrastructure over the next decade. Meanwhile, the president-elect is planning sharp tax cuts. Critics like Schiff say doing both will cause the U.S. deficit to swell. In FY2016, the deficit was a staggering $587 billion.

"We're going to have to do even more quantitative easing (QE)," Schiff said.

QE is policymakers' most powerful tool: ultra-easy liquidity to juice the economy.

As for an interest rate hike next week, Schiff believes it's already "too little, too late..."

And that is being taken as a stock market crash warning sign...

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 "The Fed is going to have to reverse and cut interest rates, and it's not going to create economic growth, but it is going to put pressure on inflation that is already now above what the Fed supposedly says is its supposed target," Schiff explained.

According to Schiff, the Fed will be looking at how to finance the massive deficits that are certain to develop amid Trump's copious spending and generous tax cuts.

As for what lies ahead, Schiff cited the global bond rout that followed Trump's win and put an end to the 30-year-old bull run in bonds.

A two-day wallop wiped out more than $1 trillion across global bond markets worldwide. It marked the worst rout in nearly one-and-a-half years, as wagers rose that plans under a Trump administration would lift business investments and spending while firing up inflation.

Schiff believes that the collective outcome from Trump's policies will lead to a "crisis" and a stock market crash to rival the one of 2008.

While it is impossible to accurately predict a stock market crash, Money Morning believes all investors should always have a plan for when the markets turn south. That's why we've created this complete guide on how to prepare, and even profit, during a stock market crash...

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