• The next bear market risks causing a $10 trillion crash in the US housing market that could lead to a downturn to rival the Great Depression of the 1930s, according to Martin Feldstein, the president emeritus of the US National Bureau of Economic Research.
  • A spike in 10-year Treasury yields would be likely to trigger a bear market, which could grow into a wider crisis that the economy is not prepared to fight, he told The Daily Telegraph.
  • "When the next recession comes, it is going to be deeper and last longer than in the past," Feldstein told the newspaper. "We don't have any strategy to deal with it."
  • The EU would be hit worse than the US or UK because it lacks strong defenses against deflationary shocks, Feldstein said.

The next US bear market is likely to be caused by a spike in 10-year Treasury yields and would risk setting off a $10 trillion crash in US household assets, according to Martin Feldstein, the president emeritus of the US National Bureau of Economic Research.

"When the next recession comes, it is going to be deeper and last longer than in the past. We don't have any strategy to deal with it," Feldstein, a former chairman of the White House Council of Economic Advisers, told The Daily Telegraph, adding that the heads of the economy lack emergency tools to recover in the event of a severe recession.

Feldstein said he thinks the effects of a bear market could spread into the retail economy, draining it of $300 billion to $400 billion a year, and risk an economic crash to rival the Long Depression of the 1870s and the Great Depression of the 1930s.

A decade of very low interest rates and fiscal stimulus by the US Federal Reserve has pushed Wall Street equities to a breaking point and no longer look anything like historical fundamentals, he told The Telegraph.

"Fiscal deficits are heading for $1 trillion, and the debt ratio is already twice as high as a decade ago, so there is little room for fiscal expansion," he said, adding, "We have no ability to turn the economy around."

He said the eurozone would be even worse off in the event of a deep crisis because the European Central Bank hadn't built strong defenses against deflationary shocks. The half-constructed nature of the EU's monetary system means any response would most likely be too little, too late, Feldstein said.

"The Europeans don't have a fiscal backup," he told The Telegraph. "They don't have anything. At least you have your own central bank and treasury in Britain, so you will be happier."

Referring to the president of Europe's central bank, Feldstein added: "Mario Draghi is going to be very happy when he has left the ECB because it is not clear how they are going to get out of this when they still have zero rates. They can't play the trick of the cheap euro again."

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