If you look at what’s going on in the real US economy versus the public sector, the picture is pretty grim, according to Chris Whalen, managing director of Institutional Risk Analytics.
“The real economy is contracting, and there’s no credit either from banks or from vendors,” Whalen told CNBC Tuesday.
“We’re seeing what normal is right now,” he added.
“We don’t have any stimulus, we don’t have any tax credits for home purchases, we don’t have any of the push that helped auto sales earlier.”
Whalen, who believes the US is in double-dip territory, recommended letting interest rates go up.
“Otherwise all the savers in the economy, whether they’re pension funds or individuals, are going to starve to death, and you’re also getting into a weird situation where you’re telling people money has no value,” he explained.
Whalen said the financial regulatory reform bill, which is headed to the Senate later this month, will be an additional negative for the economy.
The increased capital requirements in the bill will “stifle credit expansion,” he warned. But he does see one bright spot in the legislation: resolution authority, which would give the government the power to wind down companies that pose a threat to the country’s financial system.
“We have to get to the point where we allow failure,” he explained. “If you want to look like Europe, where the are almost no private banks, then we keep doing what we’re doing. If we want to restore discipline to our marketplace, we deal with fiscal issues in Washington and we get rid of ‘too big to fail.’”