Chris Martenson And Marc Faber: The Perils of Money Printing's Unintended Consequences

Tyler Durden's picture

Submitted by Chris Martenson 

Marc Faber: The Perils of Money Printing's Unintended Consequences

Marc Faber does not mince words. He believes the money printing policies of the Federal Reserve and its sister central banks around the globe have put the world's currencies on an inexorable, accelerating inflationary down slope.

The dangers of money printing are many in his eyes. But in particular, he worries about the unintended consequences it subjects the populace to. Beyond currency devaluation, it creates malinvestment that leads to asset bubbles that wreak havoc when they burst. And even more nefarious, money printing disproportionately punishes the lower classes, resulting in volatile social and political tensions.

It's no surprise then that he's feeling particularly defensive these days. While he generally advises those looking to protect their purchasing power to invest capital in precious metals and the equity markets (the rationale being inflation should hurt equity prices less than bond prices), he warns that equities appear overbought at this time.

On Inflation

First of all, I do not believe that the central banks around the world will ever, and I repeat ever, reduce their balance sheets. They’ve gone the path of money printing and once you choose that path you’re in it, and you have to print more money.

If you start to print, it has the biggest impact. Then you print more - it has a lesser impact unless you increase the rate of money printing very significantly. And, the third money printing has even less impact. And the problem is like the Fed: they printed money because they wanted to lift the housing market, but the housing market is the only asset that didn’t go up substantially.

 

In general, I think that the purchasing power of money has diminished very significantly over the last ten, twenty, thirty years, and will continue to do so. So by being in cash and government bonds is not a protection against this depreciation in the value of money.

On His Love for Central Bankers

Basically the U.S. had a significant increase in the average household income in real terms from the late 1940s to essentially the mid-1960s. And, then inflation began to bite and real income growth slowed down. Then came the 1980s and in order not to disappoint the household income recipients you essentially printed money and had a huge debt expansion.

 

So if you have an economic system and you suddenly grow your debt at a very high rate, it's like an injection of a stimulant of steroids. So the economy grew at a relatively fast pace, but built on additional debt. And this obviously cannot go on forever and when it comes to an end, you have a problem. But the Fed had never paid any attention.

 

The Fed is about the worst economic forecaster you can imagine. They are academics. They never go to a local pub. They never go shopping -- or they lie. But basically they are a bunch of people who never worked a single day in their lives. They’re not businessmen that have to balance the books, earn some money by selling goods, and paying the expenditures. They get paid by the government. And so these people have no clue about the economy.

 

And, so what happens is they never paid any attention to excessive credit growth -- and let me remind you, between 2000 and 2007, credit growth was five times the growth of the economy in nominal terms. In other words, in order to create one dollar of GDP, you had to borrow another five dollars from the credit market. Now this came to an end in 2008.

 

Now the Fed never having paid any attention to credit growth, they realized if we have a credit-addicted economy and credit growth slows down we have to print money. So that’s what they did. But believe me it doesn’t take a rocket scientist to see that if you print money you don’t create prosperity. Otherwise, every country would be unbelievably rich because every country would print money and be happy thereafter.

On The Unintended Consequences of Money Printing

In the short term, it has been working to some extent in the sense that equity prices are up and interest rates are down. And, so companies can issue bonds at extremely low rates. But every money printing exercise in the world leads to unintended consequences at a later point. And, this is the important issue to remember. We don’t know yet for sure what the unintended consequences are.

 

We know one unintended consequence, and this is that the middle class and the lower classes of society, say 50% of the U.S. has rather been hurt by the increase in the quantity of money in the sense that commodity prices in particular food and energy have gone up very substantially. And, since below 50% of income recipients in the U.S. spend a lot, a much larger portion of their income on food and energy than to say the 10% richest people in America and highest income earners, they have been hurt by monetary policy. In addition, the lower income groups, if they have savings, traditionally they keep them in safe deposits and in cash because they don’t have much money to invest in the first place. So the increase in the value of the S&P hasn’t helped them, but it helped the 5% or 10% or 1% of the population that owns equities. So it's created a wider wealth inequality and that is a negative from a society point of view.

Click the play button below to listen to Chris' interview with Marc Faber (runtime 40m:45s):

 

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CrockettAlmanac.com's picture

Republicans show most definitively in their ungracious rejection of Paul that they are committed to continuing their long term strategy of taking long strides in the wrong direction.

Beam Me Up Scotty's picture

I'll vote for the Republican candidate ONE more time.  Whoever it may be because Obama is so bad.  But if they grow the gubbamint again, I'll never vote for another Republican again.  Saw an article about how Santorum is going to outlaw pornography.  Message to Rick---we have alot bigger problems than fucking porn.  Hes another big Nanny State "conservative".   Im guessing that there are alot of people---Tea party types that might feel as I do.  This is your last chance Republicans.

odatruf's picture

Over my many years of being interested in politics and public policy, it has always amazed me that although ten to one people tell me they are fiscal conservatives and social liberals (or libertarians) that neither party can manage to target that sweet spot.  No doubt the many people who claim that hodge-podge of positioning can be put into one of the established camps, but doesn't it seem like a candidate who could credibly claim this ground would mop up the votes?

 

FFS people, stop supporting people who don't represent your views and interests.

 

Harbanger's picture

To say you are an economic conservative is to say you are a libertarian on 95% of the relevant issues. But to say you are a social liberal isn’t anything like saying you are a libertarian on 95% of social issues.

Social liberals are often quite aggressive advocates of using state power to impose their preffered versions of “liberty.” Most libertarians are disgusted by thought-policing political correctness, by forced “sensitivity” training, by so-called Hate Crimes tribunals and racial and gender quotas. -NR

http://www.nationalreview.com/corner/177220/myth-libertarians-social-liberals/jonah-goldberg

akak's picture

.

No doubt the many people who claim that hodge-podge of positioning can be put into one of the established camps,

Actually, it is the two so-called "established camps" who hold the "hodge-podge" of positioning, as I have always noted --- their standard, lumped-together political positions are a wild, contradictory, illogical mishmash, which I have always wondered how and why they came to be established as such in the first place.  In contrast, it is the libertarians (and only they) who are logically and morally consistent in their positions, those being consistently pro-liberty.

Cast Iron Skillet's picture

I'm voting for Ron Paul even if I have to write him in.

StychoKiller's picture

You're allowed to write in the candidate of your choice...

DosZap's picture

TheCanimal

The Republicans (with the exception of Ron Paul) are no different than the Democrats. Because Obama is bad, the Republicans should not be rewarded as they are as corrupt as the Democrats.

While I agree with you 99%, the 1%, is that OPbama has done more damage in a shorter period of time than ANY POTUS in history, and if elected again, you WONT beleieve it, even while its happening.

We have never had an openly Communistic/statist, bent on hurting Americans as much as his policies have

TheFourthStooge-ing's picture

I'm surprised that republicans aren't lining up to support Obama. He's just like Chimpy W. Bush, except he's more open about his machinations. Just because Bush kept his statist intentions more closeted doesn't make him any better. Look at the results, not the labels.

 

akak's picture

 Indeed!

If one were somehow ignorant of which pro-Fed, pro-Wall Street, pro-War puppet happened to be occupying the White House at any given moment, and had only the practical, real-world policies and actions of the presidency and the federal government to go by, they would almost certainly be forced to conclude that the same occupant of the White House from 2001 to 2009, and the same (Tweedledum-Tweedledee) party, was still in power today.

Libertarian777's picture

but they ARE lining up to support Obama.

Remember, in the MSM they will SAY they are against Obama but when the rubber hits the road they'll vote on almost all the bills he approves of.

TheFourthStooge-ing's picture

Exactly. The republican side of the War Party is supporting Obama's campaign by propping up three unelectable candidates in the primaries and marginalizing the only candidate that can beat Obama. The "liberal media", from Fox News and NPR to Rush Limbaugh and Rachel Maddow, all play along as they're paid to do.

That is how the War Party will reelect Obama. In fact, the votes have already been cast. There are only two reasons the primaries and presidential campaign are even held. First, although believability is slipping, it still provides enough of a sheen of legitimacy to convince enough people that their opinions still count and that their government listens to them. Second, all the money spent on the campaigning is a great way to launder the heroin money from operations in Afghanistan by funneling it through Super PACs into shell companies set up as advertising and marketing consultancies.

 

DonGenaro's picture

yep - we need a 2nd party

BobPaulson's picture

My hypothesis is that the human mind spent most of its evolutionary time dealing with groups of about 100 people or so, and really is not equipped to deal with abstract concepts of billions of people. On a day to day basis, most folks relate to that small circle of friends they can juggle in their heads, while global issues are like the weather to prehistoric people. It happens to you and you deal with it and plan for yourself and family accordingly.

The smart ones employ empiricism and deduction to guide their choices, the fools rely on irrational and emotional beliefs for decision making.

BoNeSxxx's picture

What follows below is not mine, although I wish it had emerged from my own head.  It's one of my favorite ZH posts and I think one of the most socially poignant ever posted here.

I never get tired of re-posting it.  Hopefully you never get tired of (re)reading it.  I think it was originally posted by Sean7K.  Enjoy:

_________________________

The solution is not political. You are asking one group of politicians (2nd tier at that) to do what their 1st tier brethren are incapable of doing- act with honor and integrity to uphold the word and spirit of the Constitution. You want the lion to lay down with the lamb.

The people, as communities, are more capable of succession than the States. Like minded Americans, who believe in liberty are all that is needed. Succession is a state of mind.

In this whole world filled with an infinity of variables, where butterfly wings in Beijing create storms in the midwest, where every single human live lives of unique experiences- how is it that history continues to repeat itself? If every choice creates a new future and everyone makes different choices- why are the results always the same? 

Where is the evolution of thought? Why are we stuck on the same questions pondered by the Greeks and others? Why has society remained the same for the last ten thousand years? Systems of slaves and masters.

History repeats itself because the world is controlled and manipulated for the benefit of a special class. Religions become tools. Politics become tools. Economics become tools. Science becomes a tool. Education becomes a tool.

When the end result of all our technology, learning and philosophy is a failure to develop liberty and fulfillment or worse, the complete and utter intransience of a social system that has all the hallmarks of slavery being perpetuated forever, should we not question whether there is a source point that controls humanity?

Sean7k's picture

Thanks! Must have been an "up" day

PrintPressPimpin's picture

yes Faber and Martenson are both on the ball.  The way they cooly and calmly explain the issue is great..  I think especially the way Martenson presents his material is great for introducing this subjectto the willfully ignorant.  These two minds alone are on another level of enlightenment above anything our slimeball politicians could ever hope to.  Remember when he talks about these bufoons at the Federal Reserve callin themselves experts and the best and brightest.  They have never had to work a real day in their lives, the rulers are just completely out of touch with the general sentiment in the US and just how close to the edge we are.... Obomber 2012--->to the brink

theMAXILOPEZpsycho's picture

wow the above 2 posts give me renewed faith in humanity

Amagnonx's picture

As human beings, we tend only to one terrible flaw, our willingness to hand over responsibility to someone else, and therefore imbue them with authority over us.  If we would recognize that responsibility is not something you can delegate, and therefore no human authority is valid, we would stop falling in a hole.

Some regard God as an authority, and so long as they don't allow some man to act in Gods stead, to excersise that authority, then they do no harm - but thats rarely the case.

 

There is only one authority any man should allow, and that is Justice, perfectly imagined, concieved with solemn intent, and pursued with constant vigilance that our own imperfect nature not corrupt it.  This is the only cause, for which force is blameless, and with it, mankind may organize himself into a society to benefit all.

 

In my opinion the law should be as short and simple as possible, being the natural law, and known to all and excersised by the people on an equal basis, none having greater authority in its interpretation or execution.  That alone is sufficient to govern man, and no government of any other kind is neccessary.

 

With merely a statement of the moral law and a system to execute it (being jury of peers), and the enforcement left to all men of conscience willing to act under its authority to execute its just verdicts.

anonnn's picture

 "History repeats itself because the world is controlled and manipulated for the benefit of a special class. Religions become tools. Politics become tools. Economics become tools. Science becomes a tool. Education becomes a tool."

A keen and effective analysis that suggests misuse of knowledge to destroy knowledge. All done to maintain the status of the privileged class which   created itself by passage of "private laws",  the definition of privilege.

Perhaps a restatement to further effectiveness:

"...History repeats itself because the world is controlled and manipulated for the benefit of a privileged class. Religions become tools to destroy religion. Politics become tools to destroy politics. Economics become tools to destroy economics. Science becomes a tool to destroy science. Education becomes a tool to destroy education."

Whoa Dammit's picture

@BobPaulson

Excellent comment. I think that businesses can only deal with groups of about 100 employees, therefore the problems we have with big corporations and big government. 

BobPaulson's picture

Thanks. Millions of years evolving as hunter-gatherers. Six thousand in agrarian concentrations with government by proxy. The brain hasn't adjusted to the breakneck speed of change.

AUD's picture

You underestimate the power of the brain. It is almost infinitely flexible in its capacity to rewire according to the circumstances a person finds themselves in & the number of neuronal connections allows an actual infinite number of possible behavioural outcomes.

It is the brains power to adapt to changing circumstance throughout life that has made the human race so dominant & also possibly so easily hoodwinked.

grid-b-gone's picture

You are speaking of Dunbar's number which is closer to 150 and has repeated itself as a truism across cultures and far back in time. 

It explains how we can feel empathy for a relative or neighbor going through a tough economic time, but rail against the "lazy" when the same type of person is part of a group drawing benefits.

Even the Amish send off splinter groups to establish in a new area when their numbers grow beyond the natrually 'neighborly'.

The concept supports moving as many decisions as possible down to the state level and below. Only universal functions such as national security and a few others can we collectively accept as a nation.

Large government is inconsistent with our evolutionary history.

Extending your point, I think modern mass media is the only force that keeps most people connected enough psychologically to allow big government. Regular face and name recognition seems to be enough of a psychological proxy for our desire for group connectedness. This, in turn, explains why money is so key to maintaining the status quo of big government.

 

john39's picture

write in candidates of course.  for now, i'm leaning towards Vlad Putin.   image the impression it would create if a significant number of people wrote in a non-candidate's name...  Hell, I would even in write in a dead guy, like jimi hendrix....  afterall, dead people vote all the time in the U.S., so why can't a dead guy win?

Caviar Emptor's picture

Hank The Cat is an active candidate for Senate in Viriginia this year.

www.youtube.com/watch?v=kjgRkTObRCs

MeelionDollerBogus's picture

I'm torn... Hank the Cat ... Vermin Supreme ... Vermin Supreme is promising a pony for every American ya know

hamster wheel's picture

He might be able to draw upon the support of the dead community, who at the last official count still make up 1.8 million of currently registered voters.

But my own inclinations would lean more towards that of the cat running for Senate in Virginia. If the aforementioned feline candidate were running on a national ticket, I might find myself favourably disposed towards its candidacy. After all, like ancient Rome, there has already been an (attempted) sale of a Senate seat (nee of the current President at that), so why not an animal? Did not an Emperor appoint a horse to the Senate? This at least would be democratic.

krispkritter's picture

There lurks in the mind of a Muppet no rhyme or reason, there's only a desire to know "Hey! Who's on Dancing With The Stars this season!?"

Most of my 'peers' are simply too bombarded with MSM crap and the crushing financial burdens they face to even notice or care. They get worked up over one headline and two days later can't remember why they even cared. The general apathy over politics and world events is epic in this country. I think we're back to the 1/99 %'s again; 1 percent care and want change, 99 percent can't tear themselves away from a glowing screen(no matter the size) to give a crap. I think it will have to get really, really bad before enough wake up(3%?) to start real change. Until then I just keep stacking(everything)...

Whoa Dammit's picture

The plethoria of prescription drugs everyone is taking these days doesn't help with the apathy problem. 

CrockettAlmanac.com's picture

A damn is far better than a gram.

t_kAyk's picture

"These days, the only time politicians tell the truth is when they call each other a liar."  ~ Alfred E. Neuman

Totentänzerlied's picture

Because they don't agree with your premise. Facts are irrelevant to mainstream politics.

A good percentage of Obama voters are still staunch Obama supporters and they will endlessly argue against the claim that "he has done none of the things he was elected to do."

Don't ask me how or how it's possible, I don't know, but I've experienced it first-hand.

A muppet said to me that I'll-bomb-ya should be re-elected because he's now familiar with the job of being president and can utilize another term more effectively than a replacement could, because a replacement would need considerable time to learn how to be president... (Following this pragmatic line of [non-]thought, why not just eliminate all term limits and elect presidents-for-life!) This muppet also, in brilliant defense of I'll-bomb-ya's fulfillment of campaign promises, said, "I mean, he's done stuff..."

Such is the state of political discourse among the citizens of this country at this time.

InconvenientCounterParty's picture

Don't confuse political discourse with voting for the best of 2-3 imperfect alternatives.

Whichever 2-3 alternatives you end up with will be mediocre and hated by 35-45%.

The haters know it deep down, but they get personal gratification from the hating and the delusion continues. Emotion always decreases human intelligence.

 

AL_SWEARENGEN's picture

Unfortunately many Americans will vote for Obama again because he might be in an episode of 'Entourage' http://www.eonline.com/news/marc_malkin/president_barack_obama_promises_make/301951 and other mindless reasons.  American propaganda is second to none.

goldfish1's picture

Average IQ USA is 98. Tied at 19th worldwide.

http://sq.4mg.com/NationIQ.htm

The average American has an IQ of 98. The media is easily able to dupe average Americans.

 

odatruf's picture

But, all Americans are above average so that's not important to us whatsoever.

Sean7k's picture

That is because it is an "average" with the mean being 100. You might want to study the bell curve and statistics in general. Further, the IQ test was  designed to measure the ability of someone to do well in college. Consequently, it is NOT a true intelligence test, but a test of a particular kind of intelligence.

There are many types of intelligence that are poorly measured by an IQ test: artistic, mechanical, athletic (hunting, survival, etc). 

The reason people are easily duped is universal: living in societies requires trust. If you question the organizational structure you will be cast out. Therefore, you trust the leadership or leave- tough decision for most people.

nmewn's picture

Nice to see someone else pointing that out.

Some of the smartest people on earth would starve to death lost in the woods or electrocute themselves changing out a breaker because they seen Bob Villa do it on TV...lol.

malek's picture

Never underestimate the power of stupidity.

WhiteNight123129's picture

It will be time to buy real estate in the US when no financing is available so you have to have 100% of principal in cash. It happened in 2002 in Brasil , it happened in Argentina, Egypt etc... etc...

Hulk's picture

I listened to this interview earlier, and I have only one question...

Got Gold ???

derek_vineyard's picture

If you have a secure place I think a huge cache of guns, ammo and survival gear will serve both purposes; survival and a tradable, negotiable currency.  A huge stash of weaponry is also an inflation hedge ...........unless you are uber-wealthy...why own gold when you can own hoards of weaponry?  (Plus its more fun to play with)

grey7beard's picture

>> .why own gold when you can own hoards of weaponry?

I bought guns and gold at about the same time.  The guns are worth a bit less than I paid for them, the gold has gone up about 70%.  Seems to me the choice is fairly easy.  Unless one is an avid hunter, more than a couple of guns, and a few dozen rounds of ammo are just silly.  If things broke down in this country to open violence, the average gun nut job in this country will be dead or seriously wounded before he pops off a dozen rounds in his survival weapon of  choice.  Lead does fly both ways.