Gloom Doom and Boom editor Dr. Marc Faber joins Alex Jones on June 23, 2009. Dr. Faber discusses the reasons for our current crisis, problems with the so-called solutions the government and FED has come up with, hyperinflation, future trends and his forecast in the near- and long-term. (Marc Faber Interview follows excerpts and comments below)
Marc Faber: When you combine large fiscal deficits with expansionarymonetary policies it is very likely that at some point inflatin will be relatively high. Once inflation is relatively high and the economy doesn’t recover, the government will print more money and that will accelerate the level of inflation.
There is a big misconception in the world, which is that when the economy is weak there are no inflationary pressures. Usually when you have a strong economy you have low inflation and when you have a weak economy you have high inflation because of the government intervention in the economy through fiscal measures, fiscal deficits and through expansionary monetary policies. You can have huge excess capacities and high inflation – the two have nothing to do with each other.
So, I think we will have high inflation and at the same time I think what we will eventually have some kind of social unrest.
The next thing the government will do to distract the attention of the people on bad economic conditions is they’ll start a war somewhere.
Comments: So, while it may be impossible to predict when inflation may occur, Faber has no doubt that it is coming. We may experience bouts of deflation, but eventually the money being printed will hit main street and as a result prices will explode on everything from oil and food to clothing and real estate. And when things get really bad, instead of taking the blame, our politicians will more than likely shift blame to someone else, in this case, as Marc Faber says, by taking to country to war.
Marc Faber: The current crisis is not the failure of free markets, but the failure of government intervention.
Now, these failed policies are even enlarged.
Comments: Essentially, everything we are doing is nothing more than an attempt to centrally plan our economy, which if history is any guide, will simply not work.
Marc Faber on the Alex Jones Show June 23, 2009 (Part 1 of 2):
Marc Faber on the Alex Jones Show June 23, 2009 (Part 2 of 2):
Source: The Alex Jones Show
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This interview is a stark contrast to what HS Dent has said, that there will be deflation because the government simply cannot print enough to reflate the money supply lost from all the bad bets made. Dent says even if we increase mortgage rates by a few percentage, the lost in value of homes will be 14 trillion dollars, much more than what the govt has printed.
Now Faber says that there has been an economic collapse in Oct last year but commodity prices were still high. I don’t know if that’s accurate because all commodity prices dropped like a stone during that time. Pretty much everything was deleveraging. Now I don’t know if this was just becase it was a knee jerk reaction to deflationary fears or whether it will likely happen again in the “real” crash where prices drop and will stay low until there’s a real recovery in 10+ years.
Not sure who to follow in this argument. Both scenarios seem to be plausible – where
1) all markets around the world tumble so much that everyone becomes poor and no one wants to lend anymore, thus keeping leverages low, so that in turn depresses prices on everything since no one out there has any money or leverage to bid up the costs of commodities (this happened last year before the crash where people around the world were rioting because of high food prices) where everyone was leveraged up 30x. Then when the crash began, traders/investors/banks deleveraged and so all comm prices came down. Now they are going back up again because of all the leveraging up once again.
2) The 2nd scenario could also be plausible where there’s so much deleveraging that businesses suffer so the government tries to print all the money to keep the businesses and banks afloat but then other prices like comm go up because of all this.
I guess the only question I have is, is it possible for governments to print that much money that fast?
@Tony
I have the same questions.
At first glance, it seems like all this money printing MUST be inflationary. Â However, wealth and assets are being destroyed at a unprecedented rate.
I agree on mid- and long-term inflation, but I am firmly in the deflationary depression camp for the short term. There’s just way too much wealth and asset value being destroyed in the short-term… we’re heading back down for the 2nd half of the W-shaped collapse by 2011 or 2012. If you print $1T and $14T gets destroyed, the $1T in new money doesn’t matter.
As the quintessential central banker, Helicopter Ben fears deflation most of all, and the Fed’s game and purpose is to inflate. Â Read his work.
People THINK money printing is bad now, but old Benny has yet to begin to really print money. After the next collapse, you will see money printing on a scale that makes what’s happened so far look like only a sad & sorry warm-up. He’s researched and written all about it during his education and career… the printing to come will be true shock & awe.  Think about it, if you had a computer that could electronically print unlimited amounts of money, how much money could you print?  Billions?  Trillions?  Quadrillions?  Of course… with a computer, it’s literally limitless.
Also checkout Bert Dohmen. Â He was on McAlvany a couple of weeks ago… FANTASTIC show that week. Â http://www.mcalvany.com/podcast/?p=80
http://www.dohmencapital.com/
Patrick, that was a fantastic interview… McAlvany always hooks it up. Dohmen basically suggested that we are going to be battling both deflation and inflation during this economic crisis, but deflation is more than likely the short-term effect.
At some point in the next year (my guess is Sept/Oct 2009 because it would be so fitting) this stock market is going to reverse course and head the other way. Can anyone really tell me that if the broad markets in the US start moving down that commodities are going to move up, or even stay at the same levels as today? No way. they are going to tank with the rest of the markets.
Furthermore, if the US markets collapse, will China, Japan, Europe, Brazil, Russia, et. al. continue to move up? Decoupling in the near-term is a pipe dream. Sorry Peter Schiff — love ya, but I can’t subscribe to the theory yet!
The entire global economy is about to get wiped out and deflation will be the flavor of the day (or year).
Faber maintains an inflationary view on this, and I cannot discount it, because to be honest i don’t know enough about economic crisis and inflation/deflation.
Perhaps we will have a bout of deflation for a short period of time… maybe 6 months to a year or two, and then inflation kicks in? Within a couple of years we should have pretty much destroyed all the credit/debt out there, so it would make sense that the extra money in the system will start having an effect.
If you haven’t read him yet, check out Martin Armstrong. He has too many articles to list here, but Armstrong is also a believer in a near-term deflaiton, but the possibility of extreme inflation shortly thereafter… Martin Armstrong, his history and his current residence will absolutely blow you away.
No time frame on this, but Faber, Armstrong, Larry Edelson and even Harry Dent have forecasted Dow Jones of 20,000 at some point in the future. I believe this will happen, but i think we need some debt/credit destruction to take place first.
Either way, whether you have deflation/inflation, if you buy equities, commodities, PM’s at the bottom, you should be good to go! (easier said than done?)
Now — can anyone tell me if we will bottom at 6500? 4500?
I could really use that info.. haha
Tony, my answer to your second question would be:Â The printing press is soooo 20th century. We can “print” a Trillion dollars with the push of a button now! And I am sure Bernanke has no problem pushing that big red button!
Mac
The problem might be easier to understand if instead of referring to “inflation” and “deflation”, you refer to “monetization” and “repudiation” of debt.
“Inflation” and “deflation” sound like maybe they are opposites that cancel each other out. They are not. Think of it this way: you have huge amounts of debt that can not be paid back. What is the central bank going to do about it?
It has two choices: “monetize” the debt (create new money and buy up the debt, effectively rolling it over), or allow debtors to repudiate their debt through bankruptcy.
THEY ARE NOT MUTUALLY EXCLUSIVE!
BOTH “solutions” are being pursued now. The debts of politically connected debtors, such as the big money-center banks, Freddie Mac, Fannie Mae, the Federal Government itself, are all being monetized.
The reason that we don’t have hyperinflation yet, is because the new money is NOT flowing through the real economy, but instead is “invested” back in the Federal Reserve itself. The banks are reluctant to loan the money that was created to keep them solvent, because the real economy is too fragile. Too much debt is being repudiated.
Debt that is being repudiated includes mortgages and the corporate debt of any non-connected corporation that goes bankrupt and can’t find any interested buyers. One possible source of huge amounts of repudiated debt MIGHT be the states, if they are not bailed out by the Federal government. California is at imminent risk of bankruptcy, and it’s not the only state in trouble (but due to its size and bureaucratic ossification, is unlikely to be able to resolve by itself).
I think that there is too much obsession over which of these processes (monetization versus repudiation) “wins”. Even if they could magically be perfectly balanced so that the money supply were relatively stable, it would still be a disaster, because the net effect would be to decapitalize the REAL economy (businesses that produce products and services that real people really use), in order to fund “cancerous government”.
Between “deflation” and hyperinflation, hyperinflation is, contrary to prevailing American thinking, much worse. “Deflation” causes assets to change hands, but once all the debt has been resolved though bankruptcy, you can kick-start the economy again.
Hyperinflation essentially entails the destruction of the monetary system, and therefor, a breakdown in the division of labor. People don’t like to part with goods, services, or labor in exchange for essentially worthless paper. During the worst of the Great Depression–which by the way after 1933 was actually inflationary not “deflationary”–unemployment peaked at 25%. In Jugoslavia, hyperinflation provoked 50-60% unemployment rates, and in Zimbabwe, reputedly around 80%. The whole point of money is to be a universally accepted means of 3rd party exchange; if money is no longer universally accepted, trade breaks down.
One more thing about so-called “inflation”: when people think of “inflation”, they usually think about rising consumer prices (for some reason, rising ASSET prices, which is still inflation, makes them happy not sad…even though the net result is still an unsustainable asset bubble…).
Prices–including the “price” of money itself (that is, its buying power)–are determined according to supply and demand. What a lot of “deflationists” are failing to keep in mind is BOTH sides of the equation:
* Demand is not infinitely “elastic”: people still want to eat even during a depression. They might shift to lower-priced foods like beans and rice, and they might cut out discretionary driving, but they still want to eat and to drive to work.
* Supply can collapse just as fast as demand. If people cut back on expenses, businesses that rely on their purchases go bankrupt and stop supplying as much.
Businesses don’t stay in business during a Depression just to flood the market with an oversupply of cheap goods.
If you go back through history, and read about Benjamin Franklin buying 3 loaves of bread with 3 pennies, ask yourself what the prevailing trend has been: rising prices, or falling? I would claim that the overall overwhelming long-term trend is the debasement of the currency.
Atash ….
You Da Bomb Dude.
Mac