Economic disaster. That’s where Marc Faber sees the world heading. And not a redo of of the 2008 financial crisis. This time it will go for broke and cause a full system reset. The author of the GloomBoomDoom recently sat down with Chris Martenson’s to castigate the central banks.
Faber used to enjoy the constant invites to the major networks to prognosticate on the world economy. Now euphoria has set in across the global markets. Dow 13k. Apple hitting $600 a share. Jobs numbers improving. A possible housing bottom. Who needs a naysayer when the world is perfect? Party like it is 2007.
Enter Faber on Martenson’s show. Obviously he’s feeling a touch defensive after the drubbing gold and silver have taken. But he maintains his mantra, don’t lose faith. And he’s lucky. He has the central banks to prove his thesis in the end.
Inflationary Pressures
Faber’s entire premise is that once the central bank starts the printing press it runs in perpetuity. Take the United States for example. The run-up on the Dow to 13k has the Fed’s fingerprints all over it. If this was CSI, the show would already be over. We know the culprit. Flooding the market with cash through Operation Twist and QEs, the Fed has created an environment that has to be maintained.
Imagine for a second the Fed was not there to backstop the financial system. The whole risk-off attitude would shut off in an instant. Market plunge. Repeat 2008.
Major institutions know that the Fed will be there with QE3 at the first sign of trouble. So that’s how you get the Dow levitating higher. Not to dismiss the underlying economic data points, the internals just don’t match with the rosy numbers. Less job loss is good as long as the hiring is going into livable wage jobs. Not a temp job.
First of all, I do not believe that the central banks around the world will ever, and I repeat ever, reduce their balance sheets. They’ve gone the path of money printing and once you choose that path you’re in it, and you have to print more money.
Consequences
Faber maintains it is obvious the consequences to the flood of money. The people on the bottom rungs of the ladder are getting crushed. The increase in commodity prices doesn’t hurt the guy on the yacht. They hurt the family of 5 putting food on the table. Or the elderly on fixed incomes. He maintains that each round of printing just continues to systematically destroy the middle class. That 50% that used to be the backbone of the United States. Now? A mere shadow of what it was before the Fed became really involved in the economy.
Marc Faber also worries about the issue of unintended consequences. Sure we know printing can cause inflationary pressures. But what if that consequence cascades into another? That is one of his chief worries. That unknown factor. How do you mitigate a risk if you can’t quantify it?
In the short term, it has been working to some extent in the sense that equity prices are up and interest rates are down. And, so companies can issue bonds at extremely low rates. But every money printing exercise in the world leads to unintended consequences at a later point. And, this is the important issue to remember. We don’t know yet for sure what the unintended consequences are.
All questions every investor needs to ask themselves as we head into uncharted waters.
Listen to the entire interview below:
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