Money printing, debt growth and deficits don't create prosperity, says Marc Faber
Source: BI-ME , Author: BI-ME staff
Posted: Fri July 24, 2009 8:21 pm

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said the US Federal Reserve managed, through stimulus, to do something that had never before been done - create a worldwide bubble in just about everything -stocks, bonds , housing and art.

The only thing that didn't go up was the dollar, according to Faber.

Speaking to the 10th Annual Agora Financial Investment Symposium in Vancouver this week, Faber said: “You cannot create prosperity through money printing and debt growth.”

Faber preached an idea that became the theme of the event: Government fiscal and monetary intervention, “can postpone, but not prevent crisis.

“I believe next year’s economy will face even larger deficits. Their deficit is attempting to stimulate credit growth. Unless real credit growth returns, they will have to put more and more money into the system to maintain the status quo. All polices target consumption. That is a mistake,” Faber said.

So what’s this mean for the market? “The S&P 500 will not recover to 2007 highs. At the peak, 44% of the S&P was the financial sector. That is gone… not coming back.”

"In the period, 2001 -2007, the Fed managed to do something that had never before been done - create a worldwide bubble in just about everything. Stocks, bonds, art, oil, housing - you name it; it went up. The only thing that didn't go up was the dollar," Faber said.

All this was achieved through stimulus, Faber said.

After a half a century of stimulus - with credit, inflation and the money supply growing faster and faster - the Fed put the pedal to the metal following the nano-recession of 2001. It dropped interest rates to just 1% - well below the rate of consumer price inflation - and kept them there until an expansion had been going on for three years.

Instead of increasing real output in the US, it lured Americans to spend and speculate...and drove Chinese entrepreneurs to put up new factories in order to give them something to buy. In America, debt grew 5 times faster than GDP; for each dollar of extra income, Americans added US$5.50 to their debt. In China, manufacturing capacity grew faster than ever.

"Bubbles had been localized in the past," Faber explained. "A bubble in one area drew investment from another area. In one market, prices soared. In another they slumped. Overall, things didn't change much."

But a worldwide bubble in everything is something new. And it caused something else that is new - a worldwide crash. We have been ducking explosions and stepping over the debris for the last two years.

For more information on the Agora Financial Investment please visit www.dailyreckoning.com

 

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

date:Posted: April 21, 2015
UAE. 39% of Arab youth agree it will never work, 36% think it could work while the remaining 25% are unsure, according to the 7th Annual ASDA'A Burson-Marsteller Arab Youth Survey.
date:Posted: April 21, 2015
UAE. Less than 0.15% of the dividends of GCC-listed companies and 0.59% of those of the UAE's dividends invested in tech start-ups vs. 5% in the USA; UAE invests 4x more of its public companies' dividends in tech start-ups.
date:Posted: April 21, 2015
UAE. Leading property recruitment specialist releases eighth edition of the "Middle East Rewards and Attitudes Survey"; 55% of respondents anticipating an improvement in economic activity.
dhgate