Marc Faber Fears "The End Of The Capitalist Economic System As We Know It"

Tyler Durden's picture




 

"We already live in a financial economy in which the debt and capital markets exceed the value of the real economy by far," Marc Faber explains to Germany's Finanzen100, "and that's before the current formation of bubbles." His most ominous warning, and one that fits perfectly with the seeming insanity of Federal Reserve (and all developed market central banks) is that "the next time a bubble bursts, then the capitalist economic system as we know will falter."


Via Finanzen100 (Google Translate),

The numbers speak for themselves: In 1980, the market capitalization of the U.S. stock market was less than 40 percent of gross domestic product (GDP). The debt, measured in credit markets, was about 130 percent of GDP. Today these figures are higher, according to Marc Faber many times: The market capitalization has reached over 100 percent of GDP, the debt about 300 percent. This is consistent with figures from the consulting firm McKinsey. After calculation, the global debt still stood in 2010 at 158 ??trillion. In 2012, there were already $ 200 trillion - and rising. This makes for a worldwide economic power of slightly more than $71 trillion about three times.

It is a powder keg on which we sit. In a normal real economy, said Marc Faber, the debt and equity markets are small - and there in order to steer the accumulated capital into investments. Net interest acts as a regulator. That is, there are only those made with the capital investment that is truly an attractive return, so a higher yield than fixed-income investments bring.

Speculative bubbles encourage innovation

However, it can also come here to the formation of speculative bubbles, as Faber points out. They are there but small, focused on little damage. On the contrary, you might even be necessary because they enabled quantum leaps in progress and can only increase the production capacity. Such a bubble bursts, then prices will fall, and so more consumers can benefit from the development. Examples give it enough: Whether the railroad boom in the twenties of the last century, the Internet boom in the late nineties or real estate bubbles. When prices dropped after the bursting of a speculative bubble, it benefited from broad sections of the population.

Such bubbles are therefore an integral part of the capitalist system. They promote the progress and increase productivity. But the decisive factor: In a real economy, the amount is limited to credit, as much as the real economic performance. Otherwise, with quasi unlimited credit available, investment is driven purely by liquidity - not real economics. And this is even more true when the market interest rate is distorted, as explained Cindy Sweeting of Franklin Templeton. The capital costs are no longer currently being determined by the market, but distorted by the intervention of central banks. Short-term financing costs are close to zero in nominal terms and negative in real terms.

Central banks override market mechanisms

The seemingly favorable debt financing and the affects it also on the decisions of the company. Incorrect or depressed capital costs can prevent new growth and lead to business transactions operate on, which should give it better. Insolvency and bankruptcies are mechanisms to ensure capitalism that no capital flows in companies that do not use it effectively. This mechanism is, however, set by the central banks suspended.

"The unintended consequences of the current artificial reduction and manipulation of interest rates and finance charges are potentially very serious," Sweeting explained: "The risk of asset price bubbles by cheap credit financing, the resolution of leveraged carry trades and the continued preference for cheap, financed on credit, investment in existing systems instead of productive and. because the capital costs are no longer determined by the market growth-enhancing investment in the creation of new facilities, many companies are able to finance subsidized low quality. "

Too much speculative and leveraged capital

...in an economy driven by liquidity accept this very different proportions. The benefit that instigate these bubbles can then be significantly lower than the destroyed by the bursting of such bubbles prosperity. Because there is too much speculative and leveraged capital within the game. There are just too many white elephant 'investments made.

The crises of the past decades due to Faber's view on interest rates too low. In every crisis, but the banks increased the dose they took a more expansionary monetary policy. The patient, however, the real economy, more and more immune to it. So the doctor increased the dose and on. Although the medicine brings temporary relief, but it does not eliminate the cause. The liquidity-driven economy, it is growing like a cancer, according to Faber and on. And that will, as Karl Marx predicted, lead to the ultimate collapse that will put the foundations of our capitalist society on fire.

How it will actually go out is open. Investors should nevertheless take the warning seriously, because the end result will be a violent crash in the capital markets.

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Sun, 11/17/2013 - 15:33 | 4162956 Stoploss
Stoploss's picture

Then the killing starts.

Sun, 11/17/2013 - 15:56 | 4163031 Anusocracy
Anusocracy's picture

The culling starts.

Sun, 11/17/2013 - 16:07 | 4163064 Four chan
Four chan's picture

whats with all the popups on here?

Sun, 11/17/2013 - 16:27 | 4163114 Pladizow
Pladizow's picture

Are you referring to the results of viewing your avatar?

Sun, 11/17/2013 - 17:21 | 4163262 Terminus C
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If I recall correctly, you used to have a "pop up" inducing avatar yourself.

Sun, 11/17/2013 - 17:28 | 4163282 CH1
CH1's picture

I hope the system crashes and burns HARD.

It will open a chance for actual free markets to exist.

Sun, 11/17/2013 - 18:05 | 4163346 john39
john39's picture

yes, but...  the psychopaths who have been running the world are engineering the collapse towards an end...  and its not freedom for the serfs.   in the confusion and choas that will result from total economic collapse, they will attempt to slip their new system into place...  probably some type of global fiat, maybe even based on a (fake) gold standard.

Sun, 11/17/2013 - 19:49 | 4163589 CH1
CH1's picture

the psychopaths who have been running the world are engineering the collapse towards an end...

Honestly, I think you credit them with too much ability. If they were so smart, they would have killed the Internet in 1993.

And, truthfully, neither of us really knows what they are trying to do.

Mon, 11/18/2013 - 05:05 | 4164423 Truthseeker2
Truthseeker2's picture
The FOUR HORSEMEN Herald the Death Knell of Predatory Capitalism

• DOLLAR Collapse

• DEBT Overwhelm

• DERIVATIVE Implosion

• DEFLATION of Assets

http://cosmicconvergence.org/?p=1987

 

"The global money matrix, worldwide financial architecture and planetary economic landscape most closely resemble the proverbial House of Cards in the form of a Pyramid-Ponzi scheme superstructure built on quicksand." 


Sun, 11/17/2013 - 20:25 | 4163663 andrewp111
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Any new system will be all-electronic, so negative interest rates become possible in the real world, and so the system administrators have full power and control. The new system will also allow money to have a "color", much like food stamps can only purchase defined food items, and the Central Bankers will be the only ones who can convert money from one color to another. This will allow them to compartmentalize and manipulate inflation and deflation in individual economic sectors without getting spillover.  It will be the "Mark of the Beast Currency".

Mon, 11/18/2013 - 11:06 | 4165071 Keyser
Keyser's picture

Unless I can hold it in my grubby little hands, I won't believe it's real. Much like I don't believe anything I hear and only half of what I see. Yeah, I am specualtively in bit coin, but PM's are where it's at in a deflationary reset. 

 

Sun, 11/17/2013 - 21:55 | 4163881 Kirk2NCC1701
Kirk2NCC1701's picture

Whatever they slip in, will not be more libertarian, but more totalitarian.

IMO, the naive hope for the former, and realists expect the latter. Judging by the way the current system is being hijacked.

Sun, 11/17/2013 - 18:23 | 4163386 asteroids
asteroids's picture

I've been saying for years... "too much credit, too much debt, and an asteroid full of CDS ready to come crashing on your head". It's the CDS market that will cause enourmous misery when not if a credit of debt event happens. I could easily see DB or JPM going up in flames.

Mon, 11/18/2013 - 06:57 | 4164464 Jimbobo
Jimbobo's picture

for some reason I pictured you like an old blue collar grandpa talking to his kids/grandkids in a "I Told you so!" manner

Mon, 11/18/2013 - 11:09 | 4165089 Keyser
Keyser's picture

If the derivatives market implodes, it takes all the large banks with it.  If CDS's blow up in Germany, it takes the US banks with it. There will be no hiding this time. 

Sun, 11/17/2013 - 21:36 | 4163848 janus
janus's picture

@terminus C....yup, janus recalls them fondly.  some of the best funbags i've evah seen.

damnit, plazidow...we all love you, but bring back those spectacular titties!

http://www.youtube.com/watch?v=OPH7z-FwWwo

alas, in the final analysis, i still don't know whether i'm more a tit or ass man.  it's a syllogistic nightmare (or, more properly, wetdream)...but, truth be known, it's a dialectic i intend never to resolve.

here's to insoluble quandries!

http://www.youtube.com/watch?v=WGuVuPNKxT8

janus

Sun, 11/17/2013 - 17:36 | 4163296 rbg81
rbg81's picture

For some mysterious reason, I find myself agreeing with you unconditionally.

Now....can I see a nipple?

Sun, 11/17/2013 - 20:26 | 4163665 Kayman
Kayman's picture

Yeah. I'm getting pop-ups too.  So, just to fuck the system, every advertizer that "pops" up never gets my business. And whenever I search for something on Google and their stupid ad algorithms bombard me with Googles version of help, I never deal with them either.

But it does make me wonder if anyone ever checks on the efficacy of advertizing on these Internet shitholes.

Sun, 11/17/2013 - 15:35 | 4162964 remain calm
remain calm's picture

Got Gold?

Mon, 11/18/2013 - 11:11 | 4165093 Keyser
Keyser's picture

Alas, I lost several kilos in a boating accident, so no, no tengo oro... 

 

Sun, 11/17/2013 - 15:37 | 4162966 Sudden Debt
Sudden Debt's picture

OH MY GOD!!!

LET'S ALL PUT OUR MONEY INTO BITCOIN SO WE CAN PAY FOR OUR SANDWICHES AT SUBWAY WITH A DIGITAL CURRENCY!!

:)

Sun, 11/17/2013 - 15:58 | 4163036 Black Forest
Black Forest's picture

Good idea. Communication networks will become extremely stable when the "Capitalist Economic System As We Know It" crumbles.

 

Sun, 11/17/2013 - 16:06 | 4163057 DFCtomm
DFCtomm's picture

Do you realize the technology required to even make a crappy pentium 4 processor? If there is no capitalist infrastructure then you have no computer on which you can store your bitcoins. There are levels of value that depend on how far we fall.

cash

precious metals

bullets

food

water

You can put bitcoins below cash but above precious metals.

 

EDIT: I'll leave this up to shame myself, but you should consider a /s tag.

Sun, 11/17/2013 - 16:09 | 4163068 Black Forest
Black Forest's picture

EDIT: I'll leave this up to shame myself, but you should consider a /s tag.

Agreed :)

Sun, 11/17/2013 - 16:21 | 4163098 DFCtomm
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To be fair the world has become so bizarre that it's destroying sarcasm. The onion is barely recognizable as sarcasm now.

Sun, 11/17/2013 - 20:33 | 4163687 SunRise
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add antibiotics, aspirin

Sun, 11/17/2013 - 16:10 | 4163067 joego1
joego1's picture

I can see people in fema camps fighting over their laptops to protect their bitcoins. "Start the generator Fred lets see if the internet is up yet so I can unload my bitcoin." You folks seem to be one of the few people that see the folly of bitcoin as a safe haven from fiat.

Sun, 11/17/2013 - 18:10 | 4163356 FredFlintstone
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I will be working the generator in a FEMA camp? Do I get any special privileges?

Fred

Sun, 11/17/2013 - 20:30 | 4163678 Kayman
Kayman's picture

Speaking of generators, I bought a nice little 4 cylinder Lister/Petter 65KW the other day. Just for temporary backup. 

Sun, 11/17/2013 - 20:34 | 4163689 SunRise
SunRise's picture

65KW Temporary Backup?   What are you running - all the street lights in New York City?

Sun, 11/17/2013 - 21:55 | 4163880 gonetogalt
gonetogalt's picture

Yea, a 5kw Lister-Petter goes about 12 hrs on a gallon of diesel. depending on load.

Sun, 11/17/2013 - 23:39 | 4164100 fockewulf190
fockewulf190's picture

Internet access? In a FEMA camp? Surely you jest!

Sun, 11/17/2013 - 15:36 | 4162967 Dr Benway
Dr Benway's picture

 "the next time a bubble bursts, then the capitalist economic system as we know will falter."

 

LOL, that already happened last time

Sun, 11/17/2013 - 20:32 | 4163684 Kayman
Kayman's picture

L, that already happened last time

Yeah, but the Fed turned on their anti-gravity machine, so we ain't falling no more. Unfortunately, the side effect is terminal cancer.

Sun, 11/17/2013 - 15:37 | 4162969 Confundido
Confundido's picture

Not too far, in a country ahead of the curve....:    http://youtu.be/y1E3FSSE23w

Sun, 11/17/2013 - 17:21 | 4163264 Oracle of Kypseli
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Chavez legacy

Sun, 11/17/2013 - 15:36 | 4162970 Flakmeister
Flakmeister's picture

Faber gets it, even if I don't agree with everything he says...

Sun, 11/17/2013 - 15:44 | 4162995 Confundido
Confundido's picture

Agree...what about his explanation on the underperformance of gold? Ridiculous! In his words, it seems that gold underperformed because printed money is not "distributed evenly". It goes first to some assets, and then eventually, to gold. Yes, I get that money printing is not neutral, but if it doesn't get to gold, why would god fall by 30% from its peak? The logical argument would have been that gold should have stayed at $1,900s for the last two years. In any case, his argument reduces to: Gold fell because people did not buy it, which is nothing else but a tautology. So, yes, I agree with you: He get's it, even if I don't agree with everything he says.

Sun, 11/17/2013 - 15:56 | 4163029 SRSrocco
SRSrocco's picture

Not only is the Capitalist Economic System going to Bust so is the Great Bakken Oil Field:

The Coming Bust of the Great Bakken Oil Field

http://srsroccoreport.com/the-coming-bust-of-the-great-bakken-oil-field/...


The daily decline rate of the Bakken is 63,000 barrels a day up from only 35,000 barrels a day in the beginning of 2012.  At this rate the daily decline rate for the Bakken will be 80-85,000 bd by the end of 2014.


Sun, 11/17/2013 - 17:17 | 4163240 frankthomaswhite59
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Thank you EROI/SRSrocco.

Sun, 11/17/2013 - 20:39 | 4163704 Kayman
Kayman's picture

Don't need no stinking Keystone. Energy independence by new technology for capturing hot air.

Sun, 11/17/2013 - 21:20 | 4163817 GlobalCtzn
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SRSrocco, Yours is the best blog I discovered this year! Excellent analysis and information! Thank you.

Sun, 11/17/2013 - 16:22 | 4163099 Flakmeister
Flakmeister's picture

My theory on why gold got bitch slapped is that marginal demand is being more than satisfied by the massive recycling of scrap in the west and the bump up in production...

The middle class is liquidating its assets....

They has to be unencumbered asssets to convert into physical gold, and those are disappearing fast except for the uber wealthy (who as a rule don't really care about gold)...

 

Sun, 11/17/2013 - 19:24 | 4163522 hardcleareye
hardcleareye's picture
Gold Daily and Silver Weekly Charts - Claims Per Ounce at 69 to 1

Nothing much of note in the metals today as they continued to bump into overheard resistance.

There was little movement of gold bullion in or out of the Comex warehouses.

I had asked Nick Laird of Sharelynx to check his figures and it turns out that the 'claims per ounce' from yesterday were a bit light at 63.  That did seem very little for a 51,000 ounce withdrawal.

A corrected chart is shown below. 

We are at an all time record of 69 potential claims for each ounce of deliverable gold.

Koosjansen has a new update on 'West To East Gold Distribution'

 

(jesse's Cafe Americain)

Sun, 11/17/2013 - 23:50 | 4164119 Non Passaran
Non Passaran's picture

Yeah but that ratio is just for Crimex. It was always high there. I wouldn't give it too much significance. I know it, but I don't act on it.

Mon, 11/18/2013 - 11:20 | 4165128 Keyser
Keyser's picture

Eventually physical gold will de-couple from the paper gold market and it's true value will be restored. As long as physical is coupled to paper, short-term trading will effect the price. At 69 to 1, it won't take long for Comex inventories to be depleted when / if customers demand physical delivery. That is when de-coupling will happen. Paper gold will crater and physical will go through the roof. 

 

Sun, 11/17/2013 - 16:56 | 4163191 prmths2
prmths2's picture

I do not follow Faber closely, nor do I have any significant position in gold. However, after several months of reading ZH I do believe that the price of gold is something akin to a complex number. The real part would correspond to the physical commodity, and the imaginary part corresponds to paper gold. Just as the reactive (imaginary) component of the impedance of an electric circuit can dominate its response under certain conditions, I expect that the price of gold can be heavily influenced by what is happening with "paper" gold, especially in the current environment.

Sun, 11/17/2013 - 18:06 | 4163349 FredFlintstone
FredFlintstone's picture

Can you translate your electrical analogy into a mechanical analogy?

Sun, 11/17/2013 - 18:41 | 4163437 Landrew
Landrew's picture

A valve 

Sun, 11/17/2013 - 23:26 | 4164082 Mr. Fix
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A sledge hammer.

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