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Marc Faber: "Financial Crisis Don't Happen Accidentally, They Are Inevitable"

Tyler Durden's picture


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

As a distant but interested observer of history and investment markets I am fascinated how major events that arose from longer-term trends are often explained by short-term causes. The First World War is explained as a consequence of the assassination of Archduke Franz Ferdinand, heir to the Austrian-Hungarian throne; the Depression in the 1930s as a result of the tight monetary policies of the Fed; the Second World War as having been caused by Hitler; and the Vietnam War as a result of the communist threat.

Similarly, the disinflation that followed after 1980 is attributed to Paul Volcker’s tight monetary policies. The 1987 stock market crash is blamed on portfolio insurance. And the Asian Crisis and the stock market crash of 1997 are attributed to foreigners attacking the Thai Baht (Thailand’s currency). A closer analysis of all these events, however, shows that their causes were far more complex and that there was always some “inevitability” at play.

Take the 1987 stock market crash. By the summer of 1987, the stock market had become extremely overbought and a correction was due regardless of how bright the future looked. Between the August 1987 high and the October 1987 low, the Dow Jones declined by 41%. As we all know, the Dow rose for another 20 years, to reach a high of 14,198 in October of 2007.

These swings remind us that we can have huge corrections within longer term trends. The Asian Crisis of 1997-98 is also interesting because it occurred long after Asian macroeconomic fundamentals had begun to deteriorate. Not surprisingly, the eternally optimistic Asian analysts, fund managers , and strategists remained positive about the Asian markets right up until disaster struck in 1997.

But even to the most casual observer it should have been obvious that something wasn’t quite right. The Nikkei Index and the Taiwan stock market had peaked out in 1990 and thereafter trended down or sidewards, while most other stock markets in Asia topped out in 1994. In fact, the Thailand SET Index was already down by 60% from its 1994 high when the Asian financial crisis sent the Thai Baht tumbling by 50% within a few months. That waked the perpetually over-confident bullish analyst and media crowd from their slumber of complacency.

I agree with the late Charles Kindleberger, who commented that “financial crises are associated with the peaks of business cycles”, and that financial crisis “is the culmination of a period of expansion and leads to downturn”. However, I also side with J.R. Hicks, who maintained that “really catastrophic depression” is likely to occur “when there is profound monetary instability — when the rot in the monetary system goes very deep”.

Simply put, a financial crisis doesn’t happen accidentally, but follows after a prolonged period of excesses (expansionary monetary policies and/or fiscal policies leading to excessive credit growth and excessive speculation). The problem lies in timing the onset of the crisis. Usually, as was the case in Asia in the 1990s, macroeconomic conditions deteriorate long before the onset of the crisis. However, expansionary monetary policies and excessive debt growth can extend the life of the business expansion for a very long time.

In the case of Asia, macroeconomic conditions began to deteriorate in 1988 when Asian countries’ trade and current account surpluses turned down. They then went negative in 1990. The economic expansion, however, continued — financed largely by excessive foreign borrowings. As a result, by the late 1990s, dead ahead of the 1997-98 crisis, the Asian bears were being totally discredited by the bullish crowd and their views were largely ignored.

While Asians were not quite so gullible as to believe that “the overall level of debt makes no difference … one person’s liability is another person’s asset” (as Paul Krugman has said), they advanced numerous other arguments in favour of Asia’s continuous economic expansion and to explain why Asia would never experience the kind of “tequila crisis” Mexico had encountered at the end of 1994, when the Mexican Peso collapsed by more than 50% within a few months.

In 1994, the Fed increased the Fed Fund Rate from 3% to nearly 6%. This led to a rout in the bond market. Ten-Year Treasury Note yields rose from less than 5.5% at the end of 1993 to over 8% in November 1994. In turn, the emerging market bond and stock markets collapsed. In 1994, it became obvious that the emerging economies were cooling down and that the world was headed towards a major economic slowdown, or even a recession.

But when President Clinton decided to bail out Mexico, over Congress’s opposition but with the support of Republican leaders Newt Gingrich and Bob Dole, and tapped an obscure Treasury fund to lend Mexico more than$20 billion, the markets stabilized. Loans made by the US Treasury, the International Monetary Fund and the Bank for International Settlements totalled almost $50 billion.

However, the bailout attracted criticism. Former co-chairman of Goldman Sachs, US Treasury Secretary Robert Rubin used funds to bail out Mexican bonds of which Goldman Sachs was an underwriter and in which it owned positions valued at about $5 billion.

At this point I am not interested in discussing the merits or failures of the Mexican bailout of 1994. (Regular readers will know my critical stance on any form of bailout.) However, the consequences of the bailout were that bonds and equities soared. In particular, after 1994, emerging market bonds and loans performed superbly — that is, until the Asian Crisis in 1997. Clearly, the cost to the global economy was in the form of moral hazard because investors were emboldened by the bailout and piled into emerging market credits of even lower quality.

Above, I mentioned that, by 1994, it had become obvious that the emerging economies were cooling down and that the world was headed towards a meaningful economic slowdown or even a recession. But the bailout of Mexico prolonged the economic expansion in emerging economies by making available foreign capital with which to finance their trade and current account deficits. At the same time, it led to a far more serious crisis in Asia in 1997 and in Russia and the U.S. (LTCM) in 1998.

So, the lesson I learned from the Asian Crisis was that it was devastating because, given the natural business cycle, Asia should already have turned down in 1994. But because of the bailout of Mexico, Asia’s expansion was prolonged through the availability of foreign credits.

This debt financing in foreign currencies created a colossal mismatch of assets and liabilities. Assets that served as collateral for loans were in local currencies, whereas liabilities were denominated in foreign currencies. This mismatch exacerbated the Asian Crisis when the currencies began to weaken, because it induced local businesses to convert local currencies into dollars as fast as they could for the purpose of hedging their foreign exchange risks.

In turn, the weakening of the Asian currencies reduced the value of the collateral, because local assets fall in value not only in local currency terms but even more so in US dollar terms. This led locals and foreigners to liquidate their foreign loans, bonds and local equities. So, whereas the Indonesian stock market declined by “only” 65% between its 1997 high and 1998 low, it fell by 92% in US dollar terms because of the collapse of their currency, the Rupiah.

As an aside, the US enjoys a huge advantage by having the ability to borrow in US dollars against US dollar assets, which doesn’t lead to a mismatch of assets and liabilities. So, maybe Krugman’s economic painkillers, which provided only temporary relief of the symptoms of economic illness, worked for a while in the case of Mexico, but they created a huge problem for Asia in 1997.

Similarly, the housing bubble that Krugman advocated in 2001 relieved temporarily some of the symptoms of the economic malaise but then led to the vicious 2008 crisis. Therefore, it would appear that, more often than not, bailouts create larger problems down the road, and that the authorities should use them only very rarely and with great caution.


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Fri, 12/06/2013 - 22:19 | 4223514 LetThemEatRand
LetThemEatRand's picture

Disaster capitalism.   The new normal.  Blow up the bubble, pop it, prop up those who created it, blow it again, bail it out again, ad infinitum.

Fri, 12/06/2013 - 22:23 | 4223521 Charles Nelson ...
Charles Nelson Reilly's picture

I don't know how the word capitalism gets associated with that? It's more like plunderism or devilbankerism.

Fri, 12/06/2013 - 22:28 | 4223536 Enslavethechild...
EnslavethechildrenforBen's picture

Faber continues to completely miss the point

Fri, 12/06/2013 - 22:33 | 4223543 akak
akak's picture

Then why don't you enlighten us on "the point"?

Fri, 12/06/2013 - 22:42 | 4223554 Enslavethechild...
EnslavethechildrenforBen's picture


The Federal Reserve is going to end up owning all the wealth in the entire world, the world is going to end up owning gigantic piles of worthless green paper. The entire world is losing ground to them. There is no way to keep up with them.

The only solution is to get rid of them. Let the Treasury Dept print the shit. Interest free. Reinject it in to the base of the economic pyramid and let it trickle up to the rich that already own way too much.

Like I said, Faber is missing the big picture.

Fri, 12/06/2013 - 22:57 | 4223581 LetThemEatRand
LetThemEatRand's picture

End the Fed.

Sat, 12/07/2013 - 07:31 | 4224025 negative rates
negative rates's picture

So you're saying to fix the pain in my tooth, just think about the pain in my neck and pang in my stomach. Yea, that will work.

Sat, 12/07/2013 - 07:40 | 4224028 The Mist
The Mist's picture

Actually I disagree. The FED is buying up worthless treasuries, who cares? The FED ain't buying up assets. They're spreading wealth to their buddies and théy are using that wealth to buy up assets, or well, you know, stocks.


The solution isn't to allow the Fin. Dept. to print money instead lol. Only alters the problem slightly.

Sat, 12/07/2013 - 08:56 | 4224062 spanish inquisition
spanish inquisition's picture

The FED does not matter, they are a tool. The owners of the FED are the banks and they are owned by the 1%. They want to keep the ponzi alive because, they are able to continue to transfer wealth and there is less uncertainty. If I remember correctly, there was a change to bankruptsy law that put derivitives to the front of the line in all proceedings. I wonder who owns the majority of derivitives,  maybe the banks that own the FED? At some point in the economic ponzi, someone will give the order to "just pull it". I wonder if Detroit is in play to see if they need to plug any holes regarding derivitives. 

Sat, 12/07/2013 - 08:59 | 4224069 eclectic syncretist
eclectic syncretist's picture

The Fed will NEVER sell back what it has "bought".  It's buys are perverse forms of debt-forgiveness (MBS) and free-shit giveaways (T-bills) so that the politicians don't get rid of them. 

Fri, 12/06/2013 - 23:00 | 4223583 DoChenRollingBearing
DoChenRollingBearing's picture



@ Enslave

No, I do not think that the Fed will wind up owning everything.  What I do see is a period of great financial turmoil that will create many losers and some winners.

Shrimps like us can diversify...  Own some gold, hell even Bitcoin (as most know, I am experimenting with BTC to see if it works for me).  Guns & ammo for the more worried (like me).  Water & food production capability (which I lack).  Assets elsewhere.

I think Faber will be shown to be quite correct in the end.

Sat, 12/07/2013 - 09:55 | 4224106 czardas
czardas's picture

It never ceases to amaze me that those on ZH aways prophesying a credit crunch, dollar collapse, market crash, bond bubble burst, etc never seem to advance beyond griping and screaming. I came from a background of obsessive moderation (lol) where common sense ruled.  Things don't go up or down forever, actions eventuallyt have consequences, hard work and preparation pay off, don't live beyond your means, etc.  But most important - beware those prophesying future events once they are proved wrong since the success rate of economic prophecy is about .001%.   Fundamentals rule in the end.

The FED will suspend only if rates stay low - an extremely unlikely scenario.  An extra 300 or 400 basis points would be impossible to cover unless the FED monetize the interest created \ by monetizing debt (repeat ad infinitum) - much the same way Illinois sales bonds to pay the interest on its current bonds.  

Sat, 12/07/2013 - 11:58 | 4224391 Bangin7GramRocks
Bangin7GramRocks's picture

How do you experiment with Bitcoin again? Let me guess, if it goes way up you keep doing it. It sure sounds like experimenting with craps at the casino. I'll throw $1000 at it and if I get lucky and my gambling pays off, I'll throw another $1000. Same damn thing!

Sat, 12/07/2013 - 05:29 | 4223944 saveandsound
saveandsound's picture


If one extrapolates QE one would come to the conclusion that the FED owns all the assets at the end. However with rising asset prices QE4ever has to expand to keep up. And if the dollar further devalues the FED would have to expand even further. And before reaching the end, trust breaks.

The FOMC is surely aware of such an scenario and is going to tighten sooner or later. Faber (and others like Schilf, etc.) says, at that point the prevailing debt (private, corporate, state) will crush those who can't stand the burden. At any signs of a deflationary collapse, the central banks of the world will have another tantrum. Untapering is going to happen quick and everybody in the world who owns currency is going to flee into assets (except bonds).

For prices to explode (and explode they will, Yoda says) we need to see another collapse (maybe the last one) which puts part of the supply chain out of business resulting in scarcity of goods. At that point Dollars soon won't be accepted any more. I have actually no idea which currency is going to survive since all the big ones are "all in" in this poker game.

I believe, the central banks will own all state-issued bonds (maybe even corporate bonds) at the end, but real wealth will be in the hands of the so-called rich. We are already watching the begin of a disaster bull market. 

And in the hands of the ZH-er of course since most of us are gold- or PM-bugs. ;-) On the other hand, who am I to know the future? Maybe it will be all rainbows and unicorns and Krugman even becomes president? ;-)

Sat, 12/07/2013 - 07:53 | 4224034 pcrs
pcrs's picture

lol let the government print as much money as they think they can spend, that will work. Then the shitizen will still end up with lots of green paper en the gvt with all the assets. the fed = the government. You counterfeit their money, the police jail you. Don't believe al that seperation of powers nonsense to pretend independence.

Sat, 12/07/2013 - 10:02 | 4224114 Martel
Martel's picture

Like I said, Faber is missing the big picture.

No, he isn't. You're misjudging Faber on just one article, where he addressed just one, specific point.

Sat, 12/07/2013 - 10:01 | 4224115 RaceToTheBottom
RaceToTheBottom's picture

@Enslave, "Faber is missing the big picture."


Faber pointed out that by it's role as the reserve currency, the US was in a position to make decisions that worked for itself, bail out Mehiko, that screwed up Asia big time.  So in effect he is pointing out the disproportionate amount of power the FED has and the risk of it using that power to the worlds demise. 

Sounds like he gets it, regardless of whether he states it in slogans....

Sat, 12/07/2013 - 12:41 | 4224260 scrappy
scrappy's picture

Thumbs up Enslavethechild....

Stilll wondering HOW MUCH Gold truly exists and who holds it.

But I prefer your solution.


Sat, 12/07/2013 - 12:58 | 4224513 4 wheel drift
4 wheel drift's picture

what wealth ?

toxic & worthless paper ?

purchased with increasingly worthless fiat ?


oh and the solution is to have a different entity print freely & give it away interest free ?

brilliant !!

you cannot fix BROKEN, particularly when the entire system is corrupt and founded on misleading premises...

and let's not forget that the control of such corrupted system represents enormous power over lots of people....   and power is not just...   given away for the sake of it.....   the ONLY WAY to get power is by FIGHTING for it.

those in power will never just give it away, and those who want it will have to fight for it....  given that the system is BROKEN...

two choices left:

1.- accept the status quo

2.- fight to change it

either way...   the future is not good....  unless of course you are part of the corrupt system in whichever way you happen to have such membership, in which case, you do so at an enormous risk...  i.e. it is a small club and you ain't in it....

p.s. faber is not missing a damned thing.

Sat, 12/07/2013 - 18:18 | 4225240 Errol
Errol's picture

If you wish to know the 'big picture', here is the biggest picture.  Industrial society is irreversably dependent on energy ("the ability to do work").  Net energy available to industrial society is in decline and has been for some time, while population continues to increase.  This mandates a condition of continuous contraction for the foreseable future.

USA conventional oil production peaked in 1970, mandating either contraction or constantly increasing foreign trade deficits for imported oil.  The US response was: close the gold window, institute the Petrodollar policy of propping up the corrupt Saudi regime in return for accepting only dollars for oil, and start running up unimaginable amounts of debt in an effort to maintain the non-negotiable American Lifestyle.  We are in the later stages of that effort.

Japan has almost no internal energy production; once the nukes blew up they entered the next stage of this process.  Look to Japan to try every wack-ass "intervention" in the world to forestall the inevitable.

All else lies somewhere between arguing how many angels can dance on the head of a pin and rearranging the deck chairs on the Titanic.  As someone says downthread, Faber is discussing one very narrow set of responses to the overarching, unending contraction.

Sun, 12/08/2013 - 13:33 | 4226807 MrVincent
MrVincent's picture

Faber has called Bernanke and fed a criminal organziation many times.

Fri, 12/06/2013 - 22:35 | 4223546 LetThemEatRand
LetThemEatRand's picture

"I don't know how the word capitalism gets associated with that?"

Disaster capitalism is fascism.  Fascists use the terms you like, too.  See the Bernays article from earlier today.  "Socialism" as a term commonly used today has a totally different meaning, too.  

Sat, 12/07/2013 - 00:02 | 4223662 IndyPat
IndyPat's picture

Might I suggest...
NeoFeudalAuthoritarianism, with a just a dash of Marxism for color?

Sat, 12/07/2013 - 00:26 | 4223708 LetThemEatRand
LetThemEatRand's picture

I'll call IndyPat any time.  You in Vermont still?

Sat, 12/07/2013 - 00:33 | 4223720 IndyPat
IndyPat's picture

Nope, brother. Smack dab in the middle of Frozen Hoosierville.

Sat, 12/07/2013 - 02:54 | 4223783 LetThemEatRand
LetThemEatRand's picture

Yikes.  Tale a trip to FL. Almost 80 here today (don't tell Drudge).

Sat, 12/07/2013 - 03:18 | 4223866 Yen Cross
Yen Cross's picture

 Indy Pat is an "no show" most of the time...

Sat, 12/07/2013 - 07:58 | 4224036 Cast Iron Skillet
Cast Iron Skillet's picture

I LIKE your term Devilbankerism!! Great word coinage!

Sat, 12/07/2013 - 04:32 | 4223920 Zero Point
Zero Point's picture

Correct LTER.

Imagine the meetings in '09?

Bankster: Do it our way, or seriously, there'll be Mad Max on the streets in a matter of weeks. Who cares if it's our fault.

Elected Imbecile in suit: OK then.

I almost feel sorry for those lame ducks.

The way I feel sorry for spoilt children.

Fri, 12/06/2013 - 22:26 | 4223527 JohnnyBlaze
JohnnyBlaze's picture


Fri, 12/06/2013 - 22:31 | 4223532 hedgeless_horseman
hedgeless_horseman's picture



Saw a $100 move (up) in 4 minutes tonight on Mt Gox.  $200 in the past 18 minutes.  Must have been that a butterfly in China farted.  Zee price stability.

Fri, 12/06/2013 - 22:38 | 4223550 akak
akak's picture

Oh, come on HH, can't you recognize "growing pains"?

I mean, I can certainly remember my own youth, when, like most other kids my age, I grew from 1'6" to 6'3" in one year, then shrank back to 4'2" in one day before reaching 16'8" a few months later. 

Like I said, just growing pains.

Sat, 12/07/2013 - 00:17 | 4223688 IndyPat
IndyPat's picture

The growing of the pains goes to the very heartness of the mattering. It speaks to the very nature of American citizen citizenism.
Alas, the shrinkage is always the harbinger to the American Citizen just prior to blobbing up.
Only by regular evacuations by the roadside can a society maintain growth and relieve what you Americans refer to as pain of growingness.
A brown baby Mao a day keeps they growing pains away.

Sat, 12/07/2013 - 01:55 | 4223815 akak
akak's picture

You are truly a parangong of monolizing the truthiness means.

Sat, 12/07/2013 - 11:28 | 4224301 scrappy
scrappy's picture

Yes very stable and trusted.


Fri, 12/06/2013 - 22:30 | 4223531 frankTHE COIN
frankTHE COIN's picture

Chaos Theory / Bernanke =
ButterFly Effect

Fri, 12/06/2013 - 22:38 | 4223539 remain calm
remain calm's picture

But if you can bail out some unfortunates it makes you feel good about yourself, like your God (make the blind see, the crippled walk). So central bankers are the righteous and omnipotent Economic Gods of humanity. They will save ourselves from ourselves.

WTF...Go FUCK YOURSELFS Mr/Mrs Central Bankers. You are not God. You are Evil Ignorant Mother Fuckers. You mother fuckers could not run a lemonade stand.

Fri, 12/06/2013 - 22:34 | 4223540 NIHILIST CIPHER

Chaos/ crisic/ fear= Kontrol                  Bring on the farting butterflies.

Fri, 12/06/2013 - 22:37 | 4223551 q99x2
q99x2's picture

Yes. Reminds me of the London Whale. Eventually the FRAUD ends in catastrophe when the wealth runs out. I was going to say when the debt can't be repaid but we are long past that.

Fri, 12/06/2013 - 22:57 | 4223578 booboo
booboo's picture

Obama will issue the 1 googillion Fairyfart balloon and pay it off with a couple of squeaks and we will be off and running again, no problemos.

Sat, 12/07/2013 - 12:17 | 4224430 PT
PT's picture

How many times do I have to tell you?  There will not be "just a few" trillion dollar platinum coins.  There will be millions of coins, made from base metals, in denominations from 1 to 50 trillion dollars.  Then there will be paper notes, in various denominations from 100 trillion to 10 000 trillion dollars.  For a brief, fleeting time, a loaf of bread will cost 300 trillion dollars, but then the price will go up.  And your local ATM will still only spit out 50s, your local bank still won't let you withdraw more than three grand cash, all transactions above ten grand will still get reported, and your minimum wage will still be $7.50 per hour.


Sat, 12/07/2013 - 07:20 | 4223973 falak pema
falak pema's picture

Interesting insight provided on Bruno Iksil, the man who became known as the London Whale.

During the 2008 crisis he was ONE of the MAIN traders of JPM who MARGIN CALLED Lehman.

What goes around comes around, as they say in Boomerang town of City. 

Eric Ben-Artzi: How Risky is Citigroup’s New, Improved Version of a Once-Toxic Type of Synthetic CDO? « naked capitalism

Fri, 12/06/2013 - 22:52 | 4223570 Yen Cross
Yen Cross's picture

 Faber I like you're concepts. Show me you're balance sheet. Tell me why I should trust you, when I can chop down a tree myself!

Sat, 12/07/2013 - 06:27 | 4223985 JoBob
JoBob's picture

Yen, I like YOUR concepts. Show me YOUR balance sheet.

You're chopping the wrong tree!

Fri, 12/06/2013 - 23:04 | 4223576 Cabreado
Cabreado's picture


Fri, 12/06/2013 - 23:09 | 4223592 Prairie Dog
Prairie Dog's picture

"While Asians were not quite so gullible as to believe that “the overall level of debt makes no difference … one person’s liability is another person’s asset” (as Paul Krugman has said), they advanced numerous other arguments in favour of Asia’s continuous economic expansion and to explain why Asia would never experience the kind of “tequila crisis” Mexico had encountered at the end of 1994, when the Mexican Peso collapsed by more than 50% within a few months"

The dumb dawg says: The Krugman quote is taken out of context (of course). KTI was talking only about domestically held debt. What made the Asian crisis so devastating was that the debt was foreign, as Faber himself acknowledges lower down.

He seems to have a bit of a hang-up with KTI, citing him twice more before the end of the article and appearing to blame him for all the global economy's ills since 1990, including resuscitating the old canard about the Invincible One supposedly advocating a housing bubble. KTI has been running the global economy for the past two decades? Who knew!

The dumb dawg thinks that if you need to distort an opponent's arguments to make your case, perhaps you either 1. don't understand your opponent's arguments properly, or 2. lack intellectual confidence in your own point of view. One's own arguments should be sufficiently strong to stand on their own merits. 

I note that KTI was also an early skeptic of Asia's rise and predicted the looming crisis in 1994. KTI's predictions on US inflation and growth have also been broadly spot-on since 2008, while those of the hard-money crowd typified by Faber/Schiff/Rogers/Ferguson (generally hyperinflation and soaring interest rates any day now - five years and still counting...) have all been dead wrong.








Sat, 12/07/2013 - 00:15 | 4223683 ReactionToClose...
ReactionToClosedMinds's picture

nothing personal ... but u sure seem pretty smug.

Faber, Felix Zulauf have been more relatively correct than wrong.     If you cannot see that we are all in a careening car hugging a cliff there is not much I or anyone can add.  Feel free to regurgitate Chris Matthews style propaganda to reasure yourself.

No one can predict the future , but one can see what will eventually happen.   2008 was the most widely predicted disaster in my lifetime where my specific economic conciousness recalls the end of Eisenhower years.   At present rate, the next crisis will make 2008 seem like the Boer War in comparison to World War One.   Derivatives are  larger, big banks are bigger, Dodd-Frank was a sham to put a moat around them as a final kiss by scoundrel Dodd for his 'presdiential' campaign contributions.   Wall Street and 1-5% wins, Main Street is barely surviving. 

 And African-Americans are being treated like chattel economically ..... black male youth face zero prospects for employment while our fearless leader blasphemously wraps himself in the mantle of a genuinely great man, Nelson Mandela.  And Chicago remains the United State's largest racially segregated urban area .... and why is that and no 'academic' or law professor or 'jornolist' dares get near that important and penetrating question?  Just askin'

Forward Comrade Prairie Dog!

Sat, 12/07/2013 - 00:22 | 4223703 Prairie Dog
Prairie Dog's picture

Nelson Mandela a great man? I think you're in the wrong place! (But I agree with you)

Not sure what you mean about propaganda. And who is Chris Matthews? These are facts, unless you subscribe to the conspiracy theory that the inflation figures are manipulated and US inflation is really 10 quadrillion percent or something. 

I'm hurt that you think I'm smug. I'm just a dumb dawg, a humble acolyte of the great KTI!


Sat, 12/07/2013 - 00:46 | 4223736 ReactionToClose...
ReactionToClosedMinds's picture

you ask the question you dictate the answer, elementary Watson

there is no velocity .... zero for ZIRP.  But when ZIRP ends .......... unless businesses are on sound footing then they cannot take advantage of the opportunities which are now masked and anesthetized, Plus a lot of commercial public companies are Japanese zombies ....... propped up by low interest rates and liquidity.    High yield is a bomb waiting to go off now.   Risk Parity ...... I got it ......... but no one should be talking about the future until the West gets to some semblance of economic reality.  And PRChina you say ........ Andy Xie and Michael Pettis are pretty good observers of that 'transparent' land.

1994 to 2000 was a great time ..... the Committee to Save the World .... until reality asserted itself and the Rubin induced flight to US Treasuries and US Dollar faded into the DotCom equity madness.  

This time is different ......... I have hesitated doing the Full Monty and going cash totally for over a year..... and so have something to show ...but this is a mighty uncomfortable 'economic' boom ... where are the jobs?     What happened to Recovery Summer?

I'll take one Faber or Zulauf to most any sell-side 'strategist any time or any day ........


Sat, 12/07/2013 - 00:54 | 4223749 ReactionToClose...
ReactionToClosedMinds's picture

by the way .... where are your 'facts' you cite?  Just askin'

whenever I hear someone assert their 'facts' I start to laugh ......... facts are like iron filings that one organizes with their ideological or philosophical magnet ........ facts are nothing except in the context of the argument and assertion... Even Keynes the admitted child molester knew as much 

Sat, 12/07/2013 - 01:45 | 4223806 Prairie Dog
Prairie Dog's picture

The "facts" are that all those using an Austrian model forecast hyperinflation and soaring interest rates imminently as a result of the stimulus and QE. Almost six years on, inflation is still running below the Fed's 2 percent target.

Andy Xie? Would that be the same guy who used to be a sell-side strategist at Morgan Stanley?

Just sayin'

Sat, 12/07/2013 - 10:38 | 4224162 Bioscale
Bioscale's picture

Man, when the QE is the normal way of doing monetary policy to achieve prosperity, why just all other countries are not doing it in the same way?

You can mask and manipulate the reality until you can't anymore.. which is yet to come, isn't it?

Sat, 12/07/2013 - 01:40 | 4223799 Prairie Dog
Prairie Dog's picture

Yes yes, but my dear Holmes you're drifting off the point. I don't disagree with (some of) Faber's points - just wonder why he has to take potshots at Krugman throughout, when Krugman's post-crisis diagnosis and predictions have been far closer to reality, up to this point. Yes, I know Armageddon is coming, but it always is, isn't it? 

To answer my own question: the reason Faber can't stop picking his KTI scab is because he adheres to a world view in which there is no place for government or central authorities of any kind. I think it profoundly bugs him when he sees real-world evidence that *appears* to show governments or central banks can alleviate the worst of economic slumps. Of course, his answer is that the inevitable day of reckoning has merely been postponed. However, this conclusion is not based on ex-post empirical evidence. It is baked into his philosophical view of the world. However the economy looked, whether inflation was -3% or +25%, whether unemployment was 4% or 30%, Faber would say the same thing. This makes me mistrustful of his pronouncements. I don't discount them, but neither do I swallow them uncritically - especially when the predictions of those holding a similar Austrian mindset have been so direly off-base in the past five years. 

To quote a couple of pragmatists: it doesn't matter whether the cat is black or white, as long as it catches mice. China knows the cost of sticking to an ideologically rigid view of the world as evidence mounts that it doesn't work.

And another: when the facts change, I change my mind. What do you do?

Where are the jobs? payrolls swelled by 203,000 after a revised 200,000 increase in October, the Labor Department said yesterday. The unemployment rate fell to a five-year low of 7 percent.

Yes, there is trouble coming, but I tend to think the world will survive. It usually does.








Sat, 12/07/2013 - 09:11 | 4223991 falak pema
falak pema's picture

Nice to see somebody biting the libertarian/Austrian dogmatic bullet.

We hear the same sour murmurings about Mandela and what a Commie he was; forgetting first and foremost he was a PATRIOT to his own people's basic human rights, even if it meant challenging those of the ruling white class that had colonised them into abject ethnic slavery. Then, when he succeeded he pardoned them their sins and said : Lets build this new nation together, thereby earning his place in the pantheon of humanist giants.

Of course to some he will stay a conspiratorial commie who condoned the deaths of Afrikaner landowners who had exploited that slave labour like GOD given rigths on THEIR lands.

LIbertarians have double standards, one for themselves another for their ideological enemies; but that is a human failing and its true for all of us.

Ron PAul their Messiah has always said : Get the hell out from places we don't understand and that is sound, modest advice to all hegemonists.

If you can't then you live and die as part of that eco system, not as a apartheid denier or ideological warrior fighting your own sterile crusade as self proclaimed lord. Like the Lords of Israel or even Slave labour Qatar do to this day.

That's history's time line IMO.

There are always consequences. And neo feudal western oligarchy is now in the turbulent eye of history once again trying to protect its ill gotten gains by moar "holy" paper dissemination.

Sat, 12/07/2013 - 10:30 | 4224144 czardas
czardas's picture

Simply saying "Libertarians think..." (insert absurd statement) does not make it true.  Especially since libertarians are first and foremost individuals and not robots with identical views.  Evolution has hard-wired us to ignore our actions that we criticize in others, i.e. making sweeping generalizations then condemning those who make sweeiping generalizations.  

It's yet another case of Accusational Logic - inferring something about an opponent and then criticizing it.  LIke the Left constantly introducing the subject of racism (when folks disagree with their views) or supporters of gay rights using someone's discovered homosexuality as a weapon against them (a GOP politician) or claiming Libertarians have a double standard by stating Mandela was a communist (he was a member of the South African Communist Party - duh)   It's not like there aren't millions who once preached the superiority of Marxism.  Most grew up and discarded the fairy tales and that includes Mandela who certainly allied SA with the West. 

Sat, 12/07/2013 - 10:59 | 4224166 falak pema
falak pema's picture

your peculiar logic is a perfect example of a leopard trying to change its spots.

Mandela never proclaimed the superority of Marxism, although Nguyen Giap did; (not saying he was right as history proved the contrary); when HE knocked out the teeth of both French colonialism and AMerican Hegemonial hubris in NAM. Mandela never went beyond square one as a freedom fighter, he stayed first as political symbol then was emprisoned, although he did form the freedom fighter movement, which had marxist elements  but not only that, as his model was the Algerian resistance movement.  

Giap proved, as a true patriot, that you win the war to preserve your own freedom from the colonialist invader but then LOSE the peace 'cos you have espoused wrong dogmatic ideology. As a patriot he did commit crimes so I don't say he was virtuous as freedom fighter. But that is a lesson that the Nam people must learn for themselves (and for us) when they write the history of that painful war as seen from their collective time line. Civil cum liberation wars are ugly; even the Americans know that, inspite their short time line of nation state. 

SOmething history teaches us all. 

Sat, 12/07/2013 - 09:07 | 4224076 eclectic syncretist
eclectic syncretist's picture

Well, I disagree with bald-headed ponytails combined with pink ties!

Fri, 12/06/2013 - 23:50 | 4223650 FranSix
FranSix's picture

They might just throw the main street economy under the bus to save the bond market.  But that might mean a decline in the U.S. dollar value.  I half believe the Chinese will de-peg in the New Year.


The 1973/74 market decline started on Jan. 11.  Thoroughly ironic that the same could occur this January.

Fri, 12/06/2013 - 23:55 | 4223655 IndyPat
IndyPat's picture

..."and that the authorities should use them only very rarely"...

Every time someone uses the word "authorities" I have to suppress the urge to kick the family cat. For fucks sake, we have to stop using the language of these fucking crooks. This submission and scraping vernacular is their little psy op and it is intentional. Police are "officials" and some half wit in an ill fitting TSA uniform is an "authority". My ass. Police are public servants and TSA are trolls....well, they are a lot of things, but troll fits for the moment. Call them what the are and force them back to the role they were originally intended to serve. The police, that is. The TSA need to go back to doing whatever useless function they performed prior to the useless function they provide now. I think picking paint chips of a wall and eating them seems like just the ticket for them.

Words have power...psychologically. We have to reject this shit they feed us. I know this because Orwell knew this.

Sat, 12/07/2013 - 12:24 | 4224439 spinone
spinone's picture

In a Republic the government has authority limited by the Constitution.  Really, the government will take all the authority that The People give to it.  We need to elect better representatives that protect the authority of The People, and limit the government to the powers enumerated in the Constitution.

Sat, 12/07/2013 - 00:15 | 4223678 reader2010
reader2010's picture

We are witnessing the end of the shared human time that would allow competition between operators having to reveal their perspective and anticipation…in favor of a nano-chronological time… automatic speculation in the futurism of the instant. This insider trading is an anamorphosis of time that has yet to be analyzed and sanctioned. Regulation becomes impossible because of this escape into the acceleration of reality. We can see how the absence of a political economy of speed is now literally causing not capitalism but turbo-capitalism to explode because it is caught at the limits of the acceleration of reality… The dilemma is that science itself has been deeply affected. Our reality has become uninhabitable in milliseconds, picoseconds, femtoseconds, billionths of seconds.

— Paul Virilio, The Administration of Fear, 2007

Sat, 12/07/2013 - 02:04 | 4223820 401K of Dooom
401K of Dooom's picture

Yeah but can it pay my bills and taxes?

Sat, 12/07/2013 - 09:03 | 4224071 bombdog
bombdog's picture

Is that like a fancy dancy way of saying you can rob people blind under the guise of providing liquidty? I never heard a robbery called "the absence of political economy" before, but I guess it qualifies.

Sat, 12/07/2013 - 00:21 | 4223694 bikemess10
bikemess10's picture

As the world turns, so too the sun will rise from the east and

Sat, 12/07/2013 - 00:24 | 4223710 Douglasnew
Douglasnew's picture

So what was the conclusion there exactly? Are we headed for another blowup to bailout cycle? WTF to do about it? BTFD's has seemed to work quite well in all of these past dip scenarios which Mr. Gloom Boom Doom so aptly points out. 

Sat, 12/07/2013 - 08:59 | 4224068 bombdog
bombdog's picture

Gold is the mother of BTFDs right now. Could go to cash but then you're an unsecured creditor of the bank.

Sat, 12/07/2013 - 09:28 | 4224088 FredFlintstone
FredFlintstone's picture

Physical cash.

Sat, 12/07/2013 - 12:09 | 4224413 moneybots
moneybots's picture

"Gold is the mother of BTFDs right now. Could go to cash but then you're an unsecured creditor of the bank."


Only if you give the cash to the bank.

Sat, 12/07/2013 - 00:29 | 4223714 monad
monad's picture

In economic warfare retaliation is inevitable. Stupid humans, weaponize everything. Especially ignorance.

Sat, 12/07/2013 - 00:30 | 4223716 orez65
orez65's picture

".. one person’s liability is another person’s asset” (as Paul Krugman has said) ..."

What if the liability person can't pay? Then the other person's asset is shit.

Therefore, Paul Krugman is full of shit.

Sat, 12/07/2013 - 00:36 | 4223729 IndyPat
IndyPat's picture

Long shovels

Sat, 12/07/2013 - 07:42 | 4224029 MSimon
MSimon's picture

How long?

Sat, 12/07/2013 - 01:39 | 4223786 monad
monad's picture

Isn't it interesting that an edjumacational system that claims individuals have no free will, no original creative faculty, that we are merely followers of stimulus, enshrines Krugman as the model?

Sat, 12/07/2013 - 09:23 | 4224086 Notarocketscientist
Notarocketscientist's picture

They get bailed out (like AIG)

Sat, 12/07/2013 - 09:29 | 4224089 shovelhead
shovelhead's picture


No room for reality in that model. It shall stay an asset.

Sell it for par to Govt.

Krugmanomics is a beautiful thing. Govt. fixes everything and we pay it all back with 15% growth for the next 30 years.

What could go wrong?

Sat, 12/07/2013 - 03:02 | 4223855 starman
starman's picture

Communist treat? Seriously?

Sat, 12/07/2013 - 03:17 | 4223864 Yen Cross
Yen Cross's picture

 For the most part, Faber has been true to his word. Faber and Bass are about  to become multi billionaires. Larry is a nice guy, but Faber might want have discussion. Oracle is too looseey goosey  

   This heater in my cottage, works well. ;-)

Sat, 12/07/2013 - 06:40 | 4223971 falak pema
falak pema's picture

Put differently this statement could read : Civilization Crises don't occur accidently; they are inevitable and result from human mindset decadence fed on complacency and delusional hubris. 

Political France in beginning of 19th century, Britain/Germany in beginning 20 th, USA in beginning of 21st century.

China next? 

Sat, 12/07/2013 - 09:37 | 4224093 shovelhead
shovelhead's picture


Crisises for some are opportunities for others.

Some dead Chinese guy said that.

Sat, 12/07/2013 - 09:58 | 4224108 falak pema
falak pema's picture

did it resurrect him out of the previous one like a jack-in-da-box rising out of grave?

The nine families of China thank you for reminding the world about middle kingdom's upcoming next stand-tall, momentarily lost in Japanese created (for sure, if not Taiwanese, as seen thru Manchurian eyes) SMOGGG...what a bog.

Sat, 12/07/2013 - 09:40 | 4224096 Sufiy
Sufiy's picture

Bitcoin Crashes To $542 Overnight On Report Baidu Has Stopped Accepting Bitcoin

 Bitcoin crashed to $542 Low on BitStamp overnight on report that Baidu has stopped accepting Bitcoin. The famous "Network Effect" which has propelled Bitcoin "Valuation" according to its pumpers is working now against the "Future of Money" backed by Satoshi Nakamoto, NSA, CIA, CFR or by somebody else - please chose according to your liking. China has banned financial institutions from working with Bitcoin and now the other market operators will follow the orders.
  Chinese move was crucial for the future of Bitcoin, the last vale was taken out from those behind. Who can benefit the most from Gold 2.0? China accumulating record amount of Gold this year or U.S. scrambling to return Gold to Germany? Bitcoin will be the last nail in the rampant Gold manipulation in the Western Fractional Gold Reserve System leveraged over 65 time now. Once people will realise that nobody can manufacture  "Gold 2.0" majority will return to the real value.    It always boils down to the question: what is it better - to look like idiot before the Bubble burst or after that? China is protecting its citizens and encourages them to accumulate Gold. Gold is holding well today after all positive economic news and Bitcoin bust will ignite the new Gold Bull Leg Up breaking its free of any snake oil competition. Next few days will place this experiment for distraction of 99% from the Real Value into perspective for all involved parties.

Sat, 12/07/2013 - 10:08 | 4224122 Van Halen
Van Halen's picture

Thought you'd all be interested as our current financial crisis is tied closely to Obamacare. Here's a horrifying video of the winners of the Obamacare video contest put out by a group called the "Young Invincibles" for "Healthy Young America". The winner sings a song with lyrics to the effect of: Don't worry about the high cost, the benefits will be fabulous.

The title of the song...

"Forget About The Price Tag"

Sat, 12/07/2013 - 12:24 | 4224442 scrappy
scrappy's picture

Sickening, better sign up asap, NOT.

Sat, 12/07/2013 - 10:50 | 4224198 watmann
watmann's picture

I dont understand why we make all of these articles, analysis and commentary so mysterious. I hate to over simplify all of this but essentially its all a big Monopoly game that we played when we were kids. Geneerally the game is over when somone hass all of the money. If you want to continue the game because some of those that have all of the properties are ahving fun and want to continue to wn the properties then you make loans from the bank or individuals so they can keep landing on your properties and pay you rent. 


Isnt this whats really going on in the world today? We give consumers credit cards and charge them out the ying yang. When consumers are not consuming and we need to keep making cars we give them 0% auto loans. Essentiially, it all gets back tot he Monopoly Board game and how people act. Capitilism is the Monopoly game and the challenge for those who have is to see how long they can keep the game going on. In the mean time the argument is that this system provides the best for the most while the can is being kicked down the road. This system loke others is essentially an ultimate Ponzi scheme when you really think about it.


There is no question that excessess ultimately casue retractions in the marketplace. These are acceptable as long as the bank can provide enough liquidity, IE does the bank have enough pieces of yellow and pink paper to keep funding the loans teh people with their little ships need as they run around teh board? If not then the bak has to seek help from others like a Berkshire to fund liquidity and this is what happened because the Congress didnt provide funding authority fast enough.


Just all a big monopoly game that will eventualy bust. Just dont know when. In the mean time no better way to control the masses and provide services while Politicians get them self voted into office to make themselves feel important.

Sat, 12/07/2013 - 12:30 | 4224453 scrappy
scrappy's picture

It's really called "The Land Lords Game"

invented by a nice single taxer (LVT) Georgist back in the day.

Like most good ideas, it was stolen and distorted into the game you speak of.

Sat, 12/07/2013 - 12:05 | 4224406 moneybots
moneybots's picture

"Marc Faber: "Financial Crisis Don't Happen Accidentally, They Are Inevitable"


Car crashes are inevitable.  They still call them accidents, as they are not intentional.


100% of bubbles burst and deflate.  Yet the FED intentionally creates bubbles.

Sat, 12/07/2013 - 12:33 | 4224468 moneybots
moneybots's picture

"So, the lesson I learned from the Asian Crisis was that it was devastating because, given the natural business cycle, Asia should already have turned down in 1994. But because of the bailout of Mexico, Asia’s expansion was prolonged through the availability of foreign credits."



The bigger the boom, the bigger  the bust.  equal and opposite reaction.  Newton's  law.


The FED ignores the lesson, blowing one bigger bubble after another.


Sat, 12/07/2013 - 12:49 | 4224493 Duc888
Duc888's picture

"Marc Faber: "Financial Crisis Don't Happen Accidentally, They Are Inevitable"


Or not.  Maybe they're planned and gamed years ahead of time.

Sat, 12/07/2013 - 18:27 | 4225270 Randoom Thought
Randoom Thought's picture

Finacial Crises are only inevitable when finacialization is the quickest and most assured way for those who control the money supply to create wealth for themselves. If bankers actually had to produce something (anything) of value in order to benefit from the work of others, things would be different.

However, when an entire industry is 100% based on parasitically benefitting off of the labor and assets of others, certain characteristics inevitably arise that lead to crises. There comes a point where the greedy bastards extend their greed and parasitism too far.

... and Marc Faber is no different. He produces nothing of value and is a parasite, just like the rest. This should tell you whose "side" he is actually on.

Sat, 12/07/2013 - 20:19 | 4225515 dinkum
dinkum's picture

One point of Benjamin Graham (value investing), Phil Fisher (growth investing) and David Dodd from Graham's class notes ("Security Analysis" and "Intelligent Investor") was stock markets are lagging indicators of business cycles. 

Mark Shields of PBS Newshour stated on two days ago that President Obama delivered the best speech of his presidency that dedicated the remaining years as president to fighting "Income Inequality". Trickle-down QEs to the inefficient and "One percenters" violates political economy historians such as Marx, Keynes, Stockman and now Faber who believe in the bottom-up approach for the economy in its next phase due to 2-3 year budget and implementation time lapse before taking effect.

In other words, the President is promising continuation of policies to maintain and increase income equality. 

The day of 7-8 December 1941 commemorates the victory over Japan of the US and UK oil embargo resulting "sneak" attacks by Japan on Hawaii and Philippines. Last week VP Biden was in Japan discussing both the US currency war victory and the alleged Japan uranium enrichment for Iran while sanctions are to be enforced.

Spanish Inquisition: If you are reading this, US was founded on the Rule of Due Process of Law instead of English law that was a flexible "Truth Relativistic" Rule of Law that mostly denies STEM and the concept of zero when multiplying and dividing. US bankruptcy judges usually fail to make distinctions in their rulings on motions between priority secured creditors and successor priority secured creditor without legal notice to the former re their interest in the identical collateral. 

Are these type non-responses (Omerta) to motions in bankruptcy rulings that you question in your post about synthetic derivatives? 



Sun, 12/08/2013 - 13:21 | 4226783 evernewecon
evernewecon's picture



In a sense, they're really simply

happening according to plan.

I don't think they're inevitable.


Puppets serve privatizing of policy.

They cause adversity.

Then comes the blame game, with anyone

vulnerable, richly vulnerable, thinly

vulnerable, blamed for the damage caused

to themselves.

Then comes the outright privatization.


Ghandi got out of it by saying

just sit down.  Spin your own cloth.

I noticed it's getting more difficult

for people to provide for their own

food production.


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