I don't know what the bulls are smoking: Stockman

Anyone who believes that the global economy isn't crashing must be delirious, according to David Stockman.

The former director of the Office of Management and Budget argues that a rapidly deteriorating economic environment is going to send stocks and oil prices spiraling even lower than they already have.

"I think your traders are smoking something stronger than what I can legally buy here in Colorado," Stockman said Thursday on CNBC's "Futures Now."

The S&P 500 has fallen 6 percent year to date, and crude oil has plunged more than 17 percent. However, Stockman still sees a long way to go. He expects the S&P 500 to drop to 1,300 before making any new highs, and sees oil falling below $20.

Investors have been too optimistic about the U.S. economy because they are not factoring in global risk, said Stockman, who expects to see a recession by the end of the year.

"Everywhere trade is drying up, shipping rates are at all-time lows," he said. "There is a recession that's going to engulf the entire world economy, including the United States."

Read More Market hasn't reached its 'ultimate low': Byron Wien

Contributing to the turmoil is the ineptitude of central banks, he said. While Stockman doesn't expect the Federal Reserve to adopt a negative interest rate policy, he said monetary policymakers have exhausted all other options.

"They should have the good graces to resign. They are lost. None of this is helping the economy," he said.

Add in the 2016 presidential election, and Stockman said the markets will find themselves in a situation similar to that of the global financial crisis.

"The out-of-control election process will feed into and create an environment that we haven't seen since the fall of 2008," he said.

Of course, this isn't the first time Stockman has been bearish. For years, he has been predicting a crash worse than 2008.

Read More Expect a market meltdown before the 2016 election: Stockman

Stockman headed the White House OMB during President Ronald Reagan's first term.

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