Fed Inflates 'Bailout Bubble': Economist

As the Federal Reserve throws more and more money at the economic crisis and holds interest rates down at historic lows, it could be inflating a devastating ‘bailout bubble,’ Gerald Celente, director of Trends Research Institute, told CNBC.

“We’re looking at a bailout bubble that’s way bigger than the dotcom bubble before it and the real-estate bubble that we’re now getting out of, or attempting to,” Celente said.

“This is unprecedented; the economic system is being restructured,” he said.

The real-estate bubble was born out of the aftermath of the dotcom bubble because the Fed slashed interest rates and made more funds available, according to Celente.

But because the US government now has a vast equity position in financial institutions, it could mean that there is no bouncing back if a bailout-induced bubble bursts, Celente said.

“When this bubble bursts, there’s no reinflating it because of the government intervention into it so deeply,” he said.

“As you look through history, it seems like governments become emboldened by their failures,” he added.

Celente pointed out that according to the Italian fascist leader Benito Mussolini, the merger of state and corporate powers was called fascism.

“We could call this fascism lite,” he said, referring to the government involvement in free enterprise. “After these kind of catastrophic collapses, sometimes they’re followed by war.”

- Watch the full interview with Gerald Celente above.

For the Investor:

• Four Reasons Why Markets Could Have a Busy Summer
• Pros Say: Global Gov't Debt Crisis Next

© 2012 CNBC.com