Marc Faber: Relax, This Will Hurt A Lot

Tyler Durden's picture

Marc Faber closed out this week's Agora Financial Symposium with a speech that pretty much recapitulated the view that the end of the world is if not nigh, then surely tremendous dislocations to the existing socio-political and economic landscape are about to take place (with some very dire consequences for the US). His conclusive remarks pretty much summarize his sentiment best: "We've had a trend for most of the past 200 years: GDP of countries like
China and India went down while the West surged. That's now changed.
Emerging economies will go up, and your children in the West will have
a lower standard of living than you did. Absolutely. We won't sink to
the bottom of the sea. But other countries will grow much faster than
us. The world is very competitive, and the odds are stacked against us.
Americans, with their inborn arrogance, will not let it go that easily,
so there will be lots of tension going forward." While long-time fans of Faber will not be surprised by the gloom and doom (not much boom) here, anyone else who still holds a glimmer of hope that at the end of the day the CNBC spin may be right, is advised to steer clear of Faber's most recent thoughts.

And while we do not have the full presentation yet, the salient points have been recreated below courtesy of the Motley Fool. For those who desire a far more in depth presentation from the inimitable Mr. Faber, we direct you to his June 2008 capstone presentation: "Where is the boom, and the doom" - link here.

On reality: My views are not all that negative. I
think they're just realistic. I want to face reality. You have people
like Paul Krugman who thinks we should have another bubble to pull us
out of this. He actually said that. But he said the same thing in 2001.
And you know how that turned out.

On unintended consequences: The Fed doesn't seem to
have learned anything at all from its mistakes. Their current policy of
cutting rates to zero is designed to create sustainable growth, but
they've created larger and larger volatility in markets. There are many
unintended consequences of their actions.

The oil bubble of 2008 is a good example. In 2008, the price of oil
went ballistic, but the U.S. was already in a recession [it began in
Dec. 2007]. There was no rational reason oil should have gone
ballistic. The Fed's easy money just fueled a bubble. It was like a
$500 billion tax on consumers courtesy of the Fed. That's the added
amount that it cost you, and it helped push consumers over a cliff in
late 2008.

On the Fed: The Fed doesn't pay any attention to
asset bubbles when they grow. That's their official policy. But they
flood the system with cash when bubbles burst. They only care about
bubbles when they crash. It's a very asymmetric response and it has
many unintended consequences.

Letting bubbles inflate and then fighting them when they burst
actually worked for a while. That's what makes it dangerous. It worked
in the '90s. But you shouldn't read too much into this: This period was
assisted by unusually favorable conditions. From 1981 until early last
decade, commodities were in a bear market after a bubble in the '70s
and early '80s. And interest rates were falling throughout the '80s and
'90s, too. They almost never stopped falling. That made Fed policy look
like it was working.

Bubbles can still happen without expansionary monetary policy. In
the 19th century, you had bubbles in railroads, for example. But today,
the Fed has created a bubble in everything -- in every single asset
class. This is an achievement even for a central bank. Stocks.
Commodities. Bonds. Real estate. Gold. Everything goes up when the Fed
prints. The only asset that goes down is the U.S. dollar.

On deflation: I'm a believer that the stock market
lows of March 2009 will not be revisited. You have people like Robert
Prechter who think the Dow will collapse to 700 because of debt
deleveraging. Debt deleveraging could happen, but the Dow will not fall
because of monetary policy. The Fed will keep everything inflated in
nominal terms. And if the Dow does go to 700, you'll have more to worry
about than your investments. All the banks will be bust. The government
will be bust. You don't want cash if massive deflation happens. On the
contrary: It will be worthless. You have to think very carefully about
hardcore deflation.

On credit addiction: In a credit-addicted economy,
you don't need credit to actually fall for there to be problems. All
you need is a slowdown in the growth rate, and you get big problems.
Now, the government and the Fed are aware of this, so they are creating
debt through fiscal deficits and monetization. That creates a hugely
volatile environment. In 2008, government credit creation was inferior
to private credit contraction, and asset markets tanked. In 2009,
government credit creation was higher than private contraction, and
asset markets went ballistic. Lately, government credit creation has
slowed, and asset markets have gone down. Now, the Fed is aware of
this, and it's only a matter of time before it throws more money into
the system. I guarantee this.

On what the Fed will do from here on out: The
easiest way to fix our debt problems is with 6% inflation per year.
That bails out everyone in debt. Interest rates will stay at 0% in real
terms forever, in my opinion. If inflation is 5% per year, the Fed will
keep interest rates at 5%; that's how you get 0% real interest rates.
Now, we could have debt contraction in the private sector, but it
doesn't matter. It will be more than an offset with government debt
creation. So it's not a good idea to be all in cash and out of stocks.
Cash is very dangerous when central banks want real interest rates at
0%.

On the rest of the world: The U.S. today is much
worse off than it was 10 or 20 years ago compared with the rest of the
world. The Asians should thank the Federal Reserve for this. The Fed
practically created the emerging market economies. The Chinese pegged
its currency to the dollar in 1994, and until 1998 not much happened.
When the Fed began printing and boosting asset prices in 1998, there
was this huge debt growth, and U.S. consumers began spending at a
massive rate. That increased our trade deficit from $200 billion to
$800 billion. Of course, trade deficits have to be offset by trade
surpluses in other countries. So the Chinese began ratcheting up
production. Then their employment went up. Their wages went up.
Entrepreneurs began investing more money in capital spending. The Fed
is not the only factor that led to strong emerging market growth, but
it certainly was a major factor in it.

On delusions of grandeur: In the U.S., we still
think that we are the largest consumer market in the world. For some
services we are, but in general this is the wrong way to look at things.

There are huge differences in how statistics between countries are
produced. For one, the U.S. is the most leveraged. Other countries
factor this in. Also, consumption in the U.S. is 70% of GDP, but it's
almost all on domestic services. Spending on actual goods is only 20%
of consumption. In the U.S., we spend $600 billion a year on defense.
But $300 billion of this goes to personnel and retiree costs. In China,
the cost of personnel is basically nothing. When you adjust for
purchasing power, China probably spends about what the U.S. does on
military capital.

We also think that we have all the knowledge of the world. We think
that's our edge. But knowledge in countries with much larger
populations have the edge. Research now is being done in Asia because
it's cheaper there. Companies like Intel, IBM, and Microsoft are researching in Asia. It's just so much cheaper there. And they are
smarter than the U.S. in many ways, too.

h/t Ajay

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Kayman's picture

There is no Global trade- only one way trade.  The U.S. has been played for a bunch of pansies by China.

The bill for Global trade has arrived- the American Middle Class will be paying long term debt for short term junk, and of course purported American corporations (in name only) and the Wall Street elite get to carry on with the skim.

grunion's picture

Please....Come say that to my face.

The_Euro_Sucks's picture

The west produces what of the breadbasket again?

ToNYC's picture

Real debt cannot be repaid with Uncle Ben's helicopter dreams. The trillions never existed and have the collective effect of a stray neutrino from a dying star passing throuh your torso at the instant you may read this.

fiddler_on_the_roof's picture

Wheat, Beef, Chicken, Soy, AlfaAlfa, Corn, Fruits, Rice (surprise, surprise ?? - Asian Grain)

etc.... etc... etc...Food wise there is no compettion for USA.

DoctoRx's picture

Rather than junking you (anonymous), I thought it better to reply.

Some but perhaps not you are aware that perhaps the single greatest public health problem in the US today is obesity and overweight.  Oh, and we and our marvelous food companies have infected most of the world with that problem.  So we're #1 in food.  Great!  Let's just sit on the competition:  anyone remember Haystacks Calhoun?

gmrpeabody's picture

Doc, your personal opinion of fat people really doesn't weigh in on this conversation. Yes, there are pigs out there, why would that make you want to "junk" anyone who believes USA is the bread basket of the world?

Your remark, however, is "junk"able.

traderjoe's picture

Perhaps he was alluding to how our mega-food corporations have processed food so much using subsidized commodity crops that we have narrowed our bio-diversity, strained our environment, and dumbed down the citizens with processed crap that only is passed off as food at the $1 menus. See the documentary Food Inc. Google the aquifer in the Great Plains (don't know the name). Or the round-up resistant weeds. 

Cathartes Aura's picture

+++ GMO crops don't equal healthy foods, nor does processed, additive & artificial "fud stuffs". . .

I can also recommend watching "King Korn". . .

http://www.kingcorn.net/

fxrxexexdxoxmx's picture

aquifer in the Great Plains

Ogallala

Almost gone now.

If I turn down the three center pivots on my fields this year, we just might get another 2000 years of use out of it.

 

uraniuman's picture

That there's funny- good sarcasm.  Where I pump, we can't make the table drop no matter how many BILLION  gallons are pumped (lake states)

ToNYC's picture

Real food is real hard to find...grow your own or contract with local farmer/farmer's market co-op. It started as medicine, and ended up food. How can live on dead food is the question!

fearsomepirate's picture

Can't get fat without food, so I believe you have proved the man's point.

nmewn's picture

"Some but perhaps not you are aware that perhaps the single greatest public health problem in the US today is obesity and overweight."

Michelle? Is that you?

Friggin fascist's at every turn.

You run out of tampons? Try a carrot, they're supposed to be good for you.

 

New_Meat's picture

scrip-doc: I don't get it, are 1/6 of the American children undernourished, or are they obese?  Please expand, we'd like to know.

- Ned

Lucky Guesst's picture

OK, that is freaking funny. I have often wondered that as well. Its not because of WIC either because they can ONLY buy healthy. So anyone that is obese and on WIC should lose their benefit?

fiddler_on_the_roof's picture

People are fat in USA because of life style
No one walks much and there is no hardship
Even farmers look fat which is an anomoly
Compared to other farmers of the world.

Also it would be good to restrict any meat
to twice a week since protein take
Longer to digest. Also good to exercise
for 30 mins @ 6 miles/hr

Sisyphus's picture

Wheathttp://www.spectrumcommodities.com/education/commodity/statistics/wheattable.html

Cattlehttp://www.spectrumcommodities.com/education/commodity/statistics/cattle.html

Beef: The world's largest exporters of beef are Brazil, Australia, the United States. (http://en.wikipedia.org/wiki/Beef)

Cornhttp://www.spectrumcommodities.com/education/commodity/statistics/corntable.html

Soybeanshttp://www.spectrumcommodities.com/education/commodity/statistics/soybeantable.html

Rough RiceAsia accounts for most of the world's exports. (http://www.spectrumcommodities.com/education/commodity/rr.html)

Rice: World production of rice has risen steadily from about 200 million tonnes of paddy rice in 1960 to over 600 million tonnes in 2004. Milled rice should be about 68% of paddy by weight, although use of antiquated milling equipment in many countries means this conversion factor can sometimes be much lower. In 2004, the top four producers were China (26% of world production), India (20%), Indonesia (9%) and Bangladesh (5%).

World trade figures are very different, as only about 5–6% of rice produced is traded internationally. The largest three exporting countries are Thailand, Vietnam, and the United States. Major importers usually include Bangladesh, the Philippines, Brazil and some African and Persian Gulf countries. Although China and India are the two largest producers of rice in the world, both countries consume the majority of the rice produced domestically, leaving little to be traded internationally. (http://en.wikipedia.org/wiki/Rice)

Fruits: A bit dated (http://www.fas.usda.gov/htp/Presentations/2004/World%20Fresh%20Fruit%20Market%20(08-04).pdf). China is the world’s largest fruit producer, producing 19 percent of the world’s fruit in 2003. The European Union (EU) is the world’s second largest producer, with 14 percent of the world’s production. The third largest fruit producer is India, where 12 percent of the world’s fruit was grown in 2003.

Largest Producershttp://factoidz.com/the-worlds-largest-producers/

Largest Consumershttp://factoidz.com/the-worlds-largest-consumers/

Agriculture in USA (http://en.wikipedia.org/wiki/Agriculture_in_the_United_States)

Agriculture in China (http://en.wikipedia.org/wiki/Agriculture_in_China)

Today, India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and logging accounted for 16.6% of the GDP in 2007, employed 52% of the total workforce[1] and despite a steady decline of its share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic development of India.

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper.[2] It also has the world's largest cattle population (281 million).[3] It is the second largest producer of wheat, rice, sugar, groundnut and inland fish.[4] It is the third largest producer of tobacco.[4] India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.[4] (http://en.wikipedia.org/wiki/Agriculture_in_India)

tip e. canoe's picture

"India is the largest producer in the world of milk"

and look how they do it:

http://en.wikipedia.org/wiki/Amul

Cathartes Aura's picture

thanks for saving me the time Sisyphus. . . great post!

amrka - you're not #1 any more, time to wake up from your dreams.

[edit: ooooh tip e. - not the dreaded "co-op"!!! lol, another good link]

Kali's picture

Yuppers.  Also, the US would not be able to produce the food it does without oil, or, should I say, without cheap oil.  And LOTS of subsidies.

As far as obesity and hunger go, you CAN be obese and be malnourished.  Cheap food is not good food.  Good food is not cheap.  Good work Sisyphus and Cathartes Aura.

grunion's picture

Catch a clue, it's about efficient production where the U.S. excels. We do not have to use all our food to feed our producers.

maddy10's picture

Yeah Oily wheat, oily beef,oily everything

Breadbasket growing straight out of middle east!

thesapein's picture

Dude, you just called yourself out as a complete idiot. 

fiddler_on_the_roof's picture

agree 90% except the pussy part.

He is misleading about Asian Tigers. Innovation is still in the west.

America is the bread basket of the world

Seer's picture

And what good is "innovation" without resources?  Or, maybe you're thinking about the innovation such as took place in the financial sector?

fiddler_on_the_roof's picture

What resources for High Tech Innovation from USA - Networking Products(Cisco, HP, Juniper),

Consumer Electronics(Apple, Dell,...), Software (Microsoft, Oracle, Sybase, Adobe.......), Pharmaceutical(JNJ, Pfizer, ......), Planes & Armaments(Lockheed, Boeing, Raytheon....)

THough a non-American I will not under-estimate USA. People here only think about toxic Finance's hold on these wealth producing industries

Seer's picture

You're confusing IDEAS/PROCESSES with resources.  That's a pretty common thing, so you're excused for being confused.

Again, if you don't have the energy and you don't have the materials, "technology" is nothing but scribble on the back of a napkin!  It's like having a cake recipe but no ingredients- lot-o-good that will do you: yes, you might say "hey, you doomer, you're overlooking our ability to SELL that recipe to others!" OK, fine, but what if they are in the same ingredient-less household, they're also resource challenged?  That's the case for the entire world today (and for the future as well).

And, for those still holding out for technological miracles, just look around at what the cutting edge technologies require for input stock- increasingly harder to acquire PHYSICAL resources, like rare earth metals.

Further consider that things don't gain traction without "economies of scale" boosting them, which means that technologies have to result in mass production.  Are you (folks) confident that there are sufficient PHYSICAL resources available?  NOTE: you think that BP and the like really love drilling in Gulf waters for the hell of it?  Of course not!  This should make it all too clear that our key resources are depleting.

But yeah, sure, there are plenty of excellent napkin sketchers running around... now then, if only they could actually produce something...

steve2241's picture

One word :) : synthetic-rare-earth-metals!

ToNYC's picture

Talk is cheaper. If you think you can't, you are right.

Suisse's picture

3/4th of the hardware that went into this PC was manufactured in Taiwan. I'm not sure what is even designed in the U.S. I have "Patriot" brand RAM and even that is made in Taiwan, ironically enough.

grunion's picture

The ability to create and innovate is most certainly a resource. Heard the term "brain drain"?

cossack55's picture

More accurately " the GMO bread basket".  Monsanto is interested in your corpse.

Cathartes Aura's picture

de-junked for truth-telling. . .

just because they refuse to label GMO doesn't mean it's not "here". . .

Lucky Guesst's picture

Agreed DE-JUNK. Robert Shapiro is going to kill us one way or another. If he sits on the board you know its bad for you.

Seer's picture

Add me to the DE-JUNKED tally as well (which, by my accounts give you a positive count! more than anyone here has EVER had!).

Real Estate Geek's picture

I too would de-junk you if we had such an option.  The lack of GMO labeling is yet another example of who's really running this country.  If they (i.e. GMOs) are so good, then clearly lable products containing them and convince us why we should buy them.

DaveyJones's picture

another dejunk vote. Millions Against Monsanto.

DarkAgeAhead's picture

Same here on de-junking.  Monsanto must be eliminated.  GMO's and the horrific monoculture industrial agriculture created...simply can't be sustained.  It's faltering now, in terms of productivity and output in ever larger percentages.

Suisse's picture

GMOs are highly productive, the dislike for them is not grounded in science.

Cathartes Aura's picture

if GMO fud is so good for human health, prove it with the science reports that are NOT funded by the industry pushing the products.

and label the damn fud so informed people can make a choice - is that not what a "free" nation does?

yeah, I know, amrkns aren't "free," just heavily discounted. . .

maddy10's picture

Yeah right

Science will authoritatively confirm effects of GM foods in scientific journals in 2100AD

But I don't know how it would help your grand children with 4 arms and 4 legs?

Search Thalidomoide online; GM foods should undergo same testing as pharma drugs do or else we will be gambling with our future

Cathartes Aura's picture

please don't get me started on the pharma drugs, or the FDA. . .

I don't trust any corporate food - just label it so I can make an informed choice.

(which won't happen, so we all work from that premise)

DarkAgeAhead's picture

Exactly on labeling.  That it's not labeled is itself a sign of deep corruption of government by industry.

I'd rather not become Round Up Ready.

DaveyJones's picture

being round up ready is like being ready to be rounded up