Faber: Nations Will Print Money, Go Bust, Go to War…We Are Doomed

Discussion in 'Economics' started by bearice, May 26, 2010.

  1. Today the leading Austrian economic think tank, the Ludwig von Mises Institute held a conference at the University Club in Manhattan in which Marc Faber, famed contrarian investor and publisher of the “Gloom, Boom and Doom Report” gave his perspective on the financial crisis and his outlook for the future.

    Below are his main points and entertaining quotes:

    Central banks will never tighten monetary policy again, merely print, print, print
    Bubbles used to be concentrated in 1 sector or region in the 19th century, but off of the gold standard this concentration has ended
    “The lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything…everywhere.”
    “Central banks love to see asset prices go up,” and their policy reflects their desperation to perpetuate this
    US housing bubble that Greenspan could not spot (even though he has recently spotted bubbles in Asia) stands in stark contrast to that of Hong Kong in 1997, where prices fell by 70%, yet none of the major developers went bankrupt; this was a result of a system not built on excessive debt like that of the US
    “You have to ask what they were smoking at the Federal Reserve,” during the housing bubble, as prices were increasing by 18% annually when interest rates started to steadily rise in 2004
    Over the last couple of years, when the gross increase in public debt has exceeded the gross decrease in private debt, markets have risen, whereas when private debt growth has outpaced public debt growth, markets have tanked
    The next 3-5 years will be highly volatile

    Americans must re-think what constitutes a safe asset; in a “traditional” period, one would generally rank from most to least safe assets: cash, Treasuries, corporate bonds, equities, commodities
    However, last year Economist Gregory Mankiw articulated the position which according to Faber essentially echoes that of Fed #2 Janet Yellen and pervades much of the Fed generally, that “The problem is that people are saving money instead of spending, and we have to get the bastards spending to keep the economy going,” so the key is to inflate the money supply at something like 6% per annum
    Thus, Faber says “As far as I’m concerned, the Federal Reserve will keep interest rates at 0, precisely 0…in real terms”
    As such, cash and longterm bonds will be a bad place to hold one’s money; equities are an avenue to preserve wealth (but this is a risky proposition, given the effects of rampant currency depreciation); precious metals are a sound place for wealth preservation
    As for the US being the most important economy for the world, there is a sea change going on right now; recently car sales in emerging economies (such as Brazil, China) are outpacing those of the US, Europe and Japan; oil consumption in emerging markets is increasing, while in the developed world it is contracting; the whole world does not depend on American consumption anymore – 60% of total exports are now going to the emerging world when one includes E. Europe; the US is still a large economy but it is not growing, while the growth in the emerging world is and will continue to be strong
    “People still think of emerging market economies as poor cousins, but because 80% of the world’s people are here, in aggregate the consumption is huge.”; these are not saturated markets and they are growing rapidly
    “Everybody should have 50% of their money in the emerging world, outside the West.”; people should also keep the custody of their assets overseas
    Contrary to what the talking heads are saying, markets are not out of control, central banks are out of control printing money
    The drivers of growth in the emerging world will be the urbanization of India and China; stocks won’t necessarily rise in the short term, but there will be significant growth in Asia in the long run
    The shift in economic power from West to East has been remarkable in speed, largely due to the rapid industrialization of the emerging world and the speed at which information travels today
    There will be a massive increase in resource-intensive industries and new export markets, met with increased volatility and tension around the world
    The supply/demand characteristics of oil are great due to the need for oil in China, India, rest of Asia
    Oil is the top priority for China, as they are now a net importer
    US has a huge strategic advantage over China given that we have access to our own oil, and that of Mexico, Canada, the Middle East and off the western Coast of Africa, in addition to the ability to travel on the Atlantic or Pacific Ocean; meanwhile, China sources 95% of their oil from the Middle East, and while they are building pipelines throughout Eastern Europe for example, their oil supply points in terms of ports for example are limited, and the US has defense bases surrounding these areas; Chinese subs could sink our boats however; the Russians are also not happy about our forces being in the region, and tensions will grow as the need for natural resources in these nations grows
    Eventually, there will be war and one will want physical commodities “not paper from UBS or JP Morgan”
    In war, cities will not offer safety because one can get bombed, water may be poisoned, electricity shut off; instead, one should buy a house in the middle of nowhere/on the countryside
    The tremendous economic Sophism of the day is that a nation can print its way into prosperity; “If debt and money printing equaled prosperity then Zimbabwe would be the richest country.”
    “Mugabe is the economic mentor of Ben Bernanke.”
    Our fiscal situation is much more horrendous than it is made out to be; total debt (public and private) as a percentage of GDP counting unfunded liabilities is an astounding 800% of GDP, more than double that during 1929
    Sovereign credits in the Western world are all bankrupt, but before bankruptcy governments will print money; US government leaders will try to postpone the hour of truth, pushing the problems off till succeeding Presidents and Congressmen
    If deficits didn’t matter as many like Economist James Galbraith argue today, why should citizens even pay taxes? It would make everyone happier if they didn’t
    Faber is sure that the economists in academia are intelligent and they study the textbooks hard, but they study the wrong textbooks and are totally inconsistent in their philosophy
    In an environment of money-printing and high volatility that exists in the US and that will be created by future policy, physical gold is the best thing to own
    Once currency depreciation does take place, stocks may become very cheap, as happened when the Mexican peso depreciated by 95% in the early 80s, as the fund managers invested in Mexican equities completely undervalued them after currency collapse
    In a nutshell Faber says he is essentially bearish on everything, though he favors commodities (especially physical precious metals and agriculture), owning a house in the countryside, equities in emerging markets tied to resources (especially necessities like water and oil) and healthcare, and most of Asia including especially Japanese stocks
    There is no means of avoiding a total collapse in the West; at the first train station in 2008, the financial system went bust but didn’t die, at the next station nations will go bust (though this could take 5-10 years or less), but first they will print money as this is the most politically tenable option, and ultimately the world will go to war
    All of us will be doomed
    Bear in mind that Faber said all of this quite matter-of-factly.

    Even if you disagree with his points on the trajectory of the West, it cannot hurt to understand and prepare for the worst case scenario while still hoping for the best.

  2. World War 3 is the ultimate fate of mankind.
  3. NumLock


    Wrong !!!!

    World War 3 is planned by small elite (Bankers, Royals) not mankind.

    Mankind has nothing to do with wars. Except the dying part.
  4. Both of you need to get a life...
  5. What about Marc Faber. He keeps saying, all the government activities(printing money) will ultimately lead to wars.
  6. He gets paid for fear mongering and repetition.
  7. clacy


    Listening to guys like Faber is bad for your health and finances, IMO.
  8. dtan1e


    good point, also, i think he's gay, not definite but i know his gay friends
  9. NumLock


    I think you and southbeach4me are shills that get paid to character assassinate anyone who says anything against internal/external policy.

    You always show up not to debate facts using information but to call people morons, tin foil hat, crazy conspiracy.

    I think you'll find that as situation deteriorates more and more thanks to Policy you two support. Your shilling will get more and more futile.
  10. Faber is the best.

    He called the rally in 09, called the bear in '10 and called the gold bull troughout these last years.

    I bet the world's top bankers and hedgies screen youtube daily to see if there are any new Faber vids out.

    #10     May 26, 2010