Marc Faber Blasts "A Corrupt System That Rewards Stupidity"

Tyler Durden's picture

Authored by Marc Faber, originally posted at The Daily Reckoning blog,

For the greater part of human history, leaders who were in a position to exercise power were accountable for their actions. If they waged wars or had to defend their territories from invading hostile forces, they frequently lost their lives, territories, armies, power and crowns. I don’t deny that some leaders were irresponsible, but in general, they were fully aware that they were responsible for their acts and, therefore, they acted responsibly.

The problem we are faced with today is that our political and (frequently) business leaders are not being held responsible for their actions. Thomas Sowell sums it up well:

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”

When political leaders or economic policymakers are seen to fail, the worst that will happen to them is that they won’t be re-elected or reappointed. They then become a lobbyist or an adviser or consultant, and give speeches, earning in the process a high income on top of their pension.

Similarly, many corporate executives and fund managers who have no personal stake in the business that employs them will receive generous pensions even if they fail to do their job properly and are dismissed. (This doesn’t apply to hedge fund managers, most of whose wealth is invested in their funds.) In other words, probably for the first time in history, we have today a system where leaders are not only not punished for their failures, but are actually rewarded…

Recently, Warren Buffett said that the Fed was the world’s largest hedge fund. He is wrong. The world’s largest hedge funds are owned by people who are risk takers with their own money, since they are usually the largest investors in their funds. The academics at the Fed are playing with other people’s money.

However, if we consider that the Fed, led by its chairman, is the most powerful organization in the world — because by printing money, it can finance the government (fiscal deficits) and wars, manipulate the cost of money (interest rates), directly intervene in the economy by bailing out failing institutions (banks) or countries (Greece, etc.), intervene in the foreign exchange market and even influence elections — then the question arises whether it makes sense that so much power should be given to Fed members, who are “group thinking” academics and most of whom have never worked in the private sector. In my opinion, the enormous power of the “academic” Fed is a frightening thought. My friend Fred Sheehan recently quoted from Johann Peter Eckermann’s conversation with Goethe, Feb. 1, 1827. We talked about the professors who, after they had found a better theory, still ignored it. From Eckermann and Goethe:

“‘This is not to be wondered at,’ said Goethe; ‘such people continue in error because they are indebted to it for their existence. They would have to learn everything over again, and that would be very inconvenient.’

 

“‘But,’ said I, ‘how can their experiments prove the truth when the basis for their evaluation is false?’

 

“‘They do not prove the truth,’ said Goethe, ‘nor is such the intention; the only point with these professors is to prove their own opinion. On this account, they conceal all experiments that would reveal the truth and show their doctrine untenable. Then the scholars — what do they care for truth? They, like the rest, are perfectly satisfied if they can prate away empirically; that is the whole matter.’”

Fortunately, there is an institution that exercises control over the academics at the Fed; it is called the market economy. As I have just explained, the Fed is an immensely powerful organization, but over time, the market economy is a more powerful force that can outsmart the academics because it is adaptive and dynamic. Just consider the following. Since the implementation of QE1 at the end of 2008, money supply has exploded, but the “real” economy has hardly responded.

I know that the neo-Keynesians will argue that the Fed didn’t expand its asset purchases sufficiently. But then, as I’ve mentioned before, Mr. Bernanke opined at a press conference held on Sept. 13, 2012:

“We do think that these policies [QE3] can bring interest rates down — not just Treasury rates, but a whole range of rates, including mortgage rates and rates for corporate bonds and other types of important interest rates.”

And what has happened? Interest rates have increased. According to David Rosenberg, it is actually the fifth-worst sell-off in the 10-year Treasury note since the 1960s. Whereas we can all agree that many factors other than the Fed’s policies have had an impact on the economy (regulation, Obamacare, etc.), it is crystal clear that the Fed’s QE3 and QE4 policies have completely failed in their stated objectives. This is now an instance where the market economy has badly humbled the professors at the Fed.

When the Fed announced QE1 in late 2008, it was clear to me that monetary inflation would lead to some price increases somewhere in the system. My initial thought was that QE1 would boost gold and commodities (in December 2008, oil touched a low of $32 per barrel) as well as equities around the world, which were at the time extremely oversold. But it didn’t cross my mind that money printing would most benefit gaming stocks and the high-end luxury sector of the economy (art, vintage cars, wines, high-end real estate, etc.).

But in hindsight, it is clear that monetary inflation doesn’t flow equally into all sectors of the economy; in the current conditions, it has boosted the wealth and incomes of the most affluent people (unlike in the 1970s, when negative interest rates in real terms boosted wages and consumer prices).

According to the Pew Research Center:

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%. From 2009-11, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.”

The Pew Research Center further notes:

“The Census Bureau data also indicate that among less-affluent households, fewer directly owned stocks and mutual fund shares in 2011 (13%) than in 2009 (16%), meaning a smaller share enjoyed the fruits of the stock market rally. Likewise, fewer had individual retirement accounts (IRAs) or Keogh accounts (22% in 2011 versus 24% in 2009), and the same share had 401(k) or Thrift Savings Plan accounts (39% in both years).

 

“Among affluent households, there was also a decline in the share directly owning stock and mutual fund shares during this period (59% in 2011 versus 62% in 2009), but a slight increase in the share with IRAs or Keogh accounts (70% versus 68%) and a larger increase in the share with 401(k) or Thrift Savings Plan accounts (65% versus 61%).”

I should add that if we took just the richest 0.2% of all households in the world, their capital appreciation since 2009 would be far higher than the 28% wealth increase of households in the upper 7% of the wealth distribution (most likely in excess of 100%). During the press conference that followed the Fed’s decision not to proceed with a “taper,” Mr. Bernanke was asked why most Americans saw no income and wealth growth. The money counterfeiter responded that this was not the Fed’s problem.

Clearly, it has never occurred to the professors at the Fed that Fed policies favor only large asset holders and, by creating bubbles, destroy the assets of the majority. Thus, two factors have benefited the gaming industry.

First, the Fed’s monetary inflation has boosted the wealth of the world’s most affluent people through rising asset prices and the U.S. current account deficit, which shifted money to Asia and to resource producers (mostly oil producers) because money printing boosted oil prices. Wealthy Asians, Russians and Middle Easterners have a higher gambling propensity than Westerners and make up a large share of high rollers.

Second, we had highly expansionary fiscal policies, which permitted entitlement programs to expand and ordinary people to gamble in casinos. Gambling in casinos and online has, of course, been encouraged by the public’s loss of faith in the stock market, which they perceive to be rigged.

Alan Newman, who writes the excellent Crosscurrents newsletter, recently commented that “the charade endures” and that “the markets are not fair. Equal treatment is a myth. While the SEC would insist that all investors are equal, it is patently clear some ‘investors’ are more equal than others.”

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Dre4dwolf's picture

So lets all get stupid and rich.

 

Incubus's picture

I think we've got the first part down.

fonzannoon's picture

Marc....WTF man?

"Clearly, it has never occurred to the professors at the Fed that Fed policies favor only large asset holders and, by creating bubbles, destroy the assets of the majority"

Really? The fed is not fully aware of this? This was not their intention? 

Wake up Marc

Incubus's picture

Bernanke is religious, right?

 

You'd think a dude like him would be kind of pseudovirtuous for the sake of his own afterlife.

 

He's pretty reckless,  I can only image what'd be in store for him if "hell" were true. 

EnslavethechildrenforBen's picture

Those that are printing themselves money for nothin know full well that they are stealing from all of us.

mvsjcl's picture

"...pay no price for being wrong.”

 

They're richly rewarded for doing what they're told to do. They pay a dear price when they don't do what they're told to do. Right and wrong don't enter into the picture.


superflex's picture

"...pay no price for being wrong.”

That needs to change, now.

Manthong's picture

“‘They do not prove the truth,’ said Goethe, ‘nor is such the intention; the only point with these professors is to prove their own opinion"

If you can get this (prevailing) attitude out of "modern" education, this might be the USA again in 30 or 40 years.

Supernova Born's picture

"On this account, they conceal all experiments that would reveal the truth and show their doctrine untenable. Then the scholars — what do they care for truth?"

Gold is the standard. The weight and the measure. Its foundational value yields to only one other reality.

Calling gold a "barbarous relic" is the "BIG LIE" and the ultimate irony.

The Hobbesian truth of the human condition is what will inevitably prevail when the civilized standard of gold is rejected.

Violence is the barbarous state of nature when the simple, elegant truth that gold represents is denied.

Violence will never be relegated to an academic reliquary by "scholars". It is a fundamental reality of our physical existence held only at bay by the rule of law and the practice of honest commerce.

The question isn't gold or baseless fiat, the question is gold or violence.

DoChenRollingBearing's picture

+ 1, nicely written.  Gold is the only attractive asset to hoard that causes no economic consequences to the rest of society.  If you hoard silver, you raise the prices of all products that use silver (many many products).  Same with platinum.  

Gold has so few industrial uses that its highest and best use is as a Store of Value (pure wealth).

kayl's picture

@supernova Born

Really, you haven't been practicing your doublespeak. It's not a lie, it's a big joke.

Etymologie of barbarous comes from Old French/Latin-->Barbare/Barbarus--> Middle English--Barbarous, a depreciative adjective.  A term used to describe a person with different speech or customs.

You must admit they definitely have different speech and customs. They have a classical education and much gold over many generations. I doubt the talking heads on TV even know what the joke is about.

Boris Alatovkrap's picture

Socialism is work until run out of other people money... unfortunate, "other people" is most OUR CHILDREN and GRAND CHILDREN as WE are object of purchase by corrupt statist at beckon of corrupt corporatist.

RaceToTheBottom's picture

Hey Boris, what we have has little to do with Socialism. It is more welfare state, first for the banksters, and then, in response to the corporate largess, welfare for the lower class and some gov projects. The people with no welfare are the middle class and should be planning their exit from this country.

NeedtoSecede's picture

Or start new ones.

Secession anyone?

Pegasus Muse's picture

The problem we are faced with today is that our political and (frequently) business leaders are not being held responsible for their actions. Thomas Sowell sums it up well:

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”

When political leaders or economic policymakers are seen to fail, the worst that will happen to them is that they won’t be re-elected or reappointed.

====

As much as I admire Marc's work in general, I disagree here.  There will be a steep price -- the ultimate price -- scumbag politicians, ass-kissing federal regulators, over-educated intellectually deficient Federal Reserve bureaucrats, and most of all the theiving Gangster Banksters will pay for their treachery.  They can run but they cannot hide.  

http://tinyurl.com/q6omxgq   

If not in this life, in the hereafter.

 

 

Anusocracy's picture

"It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”

Like military drone operators and quite often, cops.

Then there are the government employees and welfare recipients that vote.

acetinker's picture

What if:

There's no such thing as an afterlife.

There's no justice absent human action.

St. Peter is a fiction.

What then?

fockewulf190's picture

If you believe that, then that means you need to grab your gun Ace and start hunting.  Don´t say "the Devil made me do it" though if you get busted.

acetinker's picture

Busted by whom?  The fkn criminals themselves?  What if I said that this belief that God will sort it all out for us simultaneously comforts, and immobilizes?

Seems like an elaborate mind-fck, to me.  Plays right into the enemies' hands.

Andre's picture

And what if there is an afterlife?

An intersting conversation about this yesterday, where the concept had been misused to control people. "step right up and get your rewards here! Untile then, OBEY!"

Any concept can be abused. I happen to believe in an afterlifr. I just don't think an afterlife absolves one of responsibility in this one.

acetinker's picture

Duh!  If there's an afterlife, I'm gonna ask God if I can come back and kick some asses.

wee-weed up's picture

 

 

The article says...

"When political leaders or economic policymakers are seen to fail, the worst that will happen to them is that they won’t be re-elected or reappointed."

Unfortunately, thanks to the failed public education system...

The union-dues-supported-Democrats have give us for the last decades...

The electorate was not only stupid enough to give us..

A woefully unprepared little community organizer as president in 2008...

But then the stupid idiots re-elected him after 4 years of total miserable failure on top of that!

 

mumbo_jumbo's picture

that same eletorate voted Bush 2.0 in for a 2nd term as well, ANY ONE who thinks we've gotten here based on the which side of the isle is in the white house (or congress for that mattre) is simply not paying attantion.....which is what the PTB are counting on.

wee-weed up's picture

 

 

Definitely NOT the same electorate!

Look - I hated Bush as much as anyone...

But Obama is many magnitudes worse...

And anyone who thinks otherwise...

Is obviously a fool for the MSM and their bullshit!

All the things they excoriated Bush for...

Obama is doing on steroids...

And their silence is deafening!

RKDS's picture

Put up another draft-dodging insurance-mandating job-destroying entitled sociopath and we just might vote Obama a 3rd term.

RiverRoad's picture

It was a deal made in heaven/hell:  Ted Kennedy anointed Obama for president to avenge his brothers' assassinations and Obama grabbed it for the millions in speaking fees he could get when he was out.

john39's picture

what religion do think the powerful adhere to?  ever see kubrick's eyes wide shut?  the truth is in plain view.  their job is to enslave the rext of us.  that is their heaven, our hell.

Skateboarder's picture

Servants and servants' quarters. And for the real playas, servants' servants and servants' servants' quarters. Yaaaah!

Imagery's picture

Bernank and the boys are living their eternity today - on Earth - and they know it.  Any student of the Bible knows Jesus rarely engaged in anything but love - but on those two or three ocasions where Jesus extolled outright anger and disgust it was exclusively at / against the moneychangers, ie banksters!

fiftybagger's picture

People may change, customs may change, and laws may change, but He never changes.  It is still coming:

1 Behold, the LORD maketh the earth empty, and maketh it waste, and turneth it upside down, and scattereth abroad the inhabitants thereof. 2 And it shall be, as with the people, so with the priest; as with the servant, so with his master; as with the maid, so with her mistress; as with the buyer, so with the seller; as with the lender, so with the borrower; as with the taker of usury, so with the giver of usury to him. 3 The land shall be utterly emptied, and utterly spoiled: for the LORD hath spoken this word. 4 The earth mourneth and fadeth away, the world languisheth and fadeth away, the haughty people of the earth do languish. 5 The earth also is defiled under the inhabitants thereof; because they have transgressed the laws, changed the ordinance, broken the everlasting covenant. 6 Therefore hath the curse devoured the earth, and they that dwell therein are desolate: therefore the inhabitants of the earth are burned, and few men left.

17 Fear, and the pit, and the snare, are upon thee, O inhabitant of the earth.

18 And it shall come to pass, that he who fleeth from the noise of the fear shall fall into the pit; and he that cometh up out of the midst of the pit shall be taken in the snare: for the windows from on high are open, and the foundations of the earth do shake.

19 The earth is utterly broken down, the earth is clean dissolved, the earth is moved exceedingly.

20 The earth shall reel to and fro like a drunkard, and shall be removed like a cottage; and the transgression thereof shall be heavy upon it; and it shall fall, and not rise again.

21 And it shall come to pass in that day, that the LORD shall punish the host of the high ones that are on high, and the kings of the earth upon the earth.

22 And they shall be gathered together, as prisoners are gathered in the pit, and shall be shut up in the prison, and after many days shall they be visited.

23 Then the moon shall be confounded, and the sun ashamed, when the LORD of hosts shall reign in mount Zion, and in Jerusalem, and before his ancients gloriously.

Isaiah 24

King James Bible

worbsid's picture

And I thought I was a Doomer. 

The Persistent Vegetable's picture

 bernanke should be different from the rest of us? almost none of us make decisions based on  what effect its going to have on our afterlife.

If Kate Upton and Salma Hayak want to tag team me, then I'm gonna let em, regardless of what Jesus says. And if ben can do his masters bidding, while living large, hes gonna do it and worry about Jesus later.

sunnyside's picture

Pussy....undefeated throughout time.

The Persistent Vegetable's picture

 bernanke should be different from the rest of us? almost none of us make decisions based on  what effect its going to have on our afterlife.

If Kate Upton and Salma Hayak want to tag team me, then I'm gonna let em, regardless of what Jesus says. And if ben can do his masters bidding, while living large, hes gonna do it and worry about Jesus later.

PlausibleDenial's picture

Fonz, I am not sure that Faber is not right.... I've read of number of books that essentially characterize these Phd's so believing in a methodology that they really lose the reality of it.  For example, consider that travesty that occurred in Latin America as a function of the Chicago econs (uncle milton's boys)  that were testing their methodologies on a unwitting class of folks.  Then consider the same for the Harvard boys (goons) that followed.   I know there is collusion and conspiracy, but.....  Now then, back to sipping some Ron Zacapa.....

Pumpkin's picture

Stupid is cover.  Being stupid is not a crime.  What Ben and the Fed do is a crime.  They thank you kindly for considering them stupid.

Teddy Tenpole's picture

 

 

Bingo!!!  What is truly amazing is that we are actually experiencing this massive rally while still in a Bear Market!  What the Boomers and Doomers around here lost sight of is the old adage, "Don't Fight The Fed".  Oh well.

Surprised Marc Faber isn't simply content with his Thai Girly Boys?  More to life eh Marc?  F n doomer douche.

max2205's picture

The Saudi's and oil companies don't like low oil prices......

Hedgetard55's picture

I just finished reading H.G. Wells' "The Time Machine".  Every ZH reader should read this. Eloi and Morlocks, sheeple and banksters... quite prescient. FWIW, the book is nothing at all like either movie.

Hedgetard55's picture

Thanks!

 

In the book the Eloi are 4 feet tall. The Morlocks are wimps as well, just not as wimpy as the Eloi.

sunnyside's picture

Yvette Mimieux was absolute smoke.  The filthy things I did to her in my mind would make make Jamie Dimond blush.

fonzannoon's picture

Take a walk around Manhattan. It's already Eloi and Morlocks.

AssFire's picture
Not just Stupidity- Exceptional Stupidity;  Amurrika
Jim in MN's picture

What about Whenizuela???

http://www.bbc.co.uk/news/world-latin-america-24500362

US ship detained by Venezuela in Guyana disputed waters

The government of Guyana says the Venezuelan navy has entered its territorial waters and detained a US-operated ship.

pndr4495's picture

Read a little bit about Cincinnatus.  His biography should be required reading for anyone seeking a position of power.

Jethro's picture

Our leaders are only taught Nero, Caligula and Diolcletian.

Incubus's picture

not roman, but i was taught diogenes.