INTERNATIONAL. Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said eventually there will be a big bust and then the whole credit expansion will come to an end. Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to continued stimulus.
Speaking at a conference in Singapore on Wednesday, Faber said: "The crisis has not solved anything. On the contrary there is less transparency today than there was before. The government's balance sheet is expanding, and the abuses that have led to the one cause of the crisis have continued".
"I think eventually there will be a big bust and then the whole credit expansion will come to an end," Faber added.
"Before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus".
In one of his Gloomiest predictions, Faber, referred to as Dr Doom, said "the average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war".
"People ask me against whom? Well, they will invent an enemy," Faber said.
"At some stage, somewhere in future, we will have a war - that you have to be prepared for. And during war times, commodities go up strongly,” said Faber.
"If you want to hedge against war, you don't want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities," he added.
In a Bloomberg Television interview in Singapore Wednesday, Faber said "What will continue to happen is that the S&P 500 and the Dow Jones will go down relative to gold.
"I think gold will go up more," he added.
“Will it go US$2,000, US$200,000 or US$2 trillion? I don’t know,” Faber said. “But if you have money printing in the world, then the price will over time rise. It will go up more for things that you just can’t increase the supply, and the supply of precious metals is very limited.”
Faber expects the US government to increase its stimulus spending should the Standard & Poor’s 500 Index fall toward 900. The US budget deficit under President Barack Obama’s administration reached a record US$1.4 trillion in the fiscal year that ended Sept. 30. Debt amounted to 9.9% of the nation’s economy, triple the size of the 2008 shortfall.
“I don’t think the S&P will drop below 800 or 900, and eventually will go higher in nominal terms, but not necessary in real terms,” he said, predicting a correction in the measure in the “near term.”
Faber has been warning about a collapse of the capitalistic system 'as we know it today,' massive government debt defaults and the impoverishment of large segments of Western society.
In a May interview with CNBC, he said central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries.
The years 2006 and 2007 were "the peak of prosperity" and the world economy is not likely to return soon to that level, he added.
Unless the system is cleaned out of losses, "the way communism collapsed, capitalism will collapse," according to Faber. "The best way to deal with any economic problem is to let the market work it through."
"I repeat what I have said in the past," Faber said. “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."