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Marc Faber On Keynesian Folly, The 'Missing' Inflation, And Bubble-Blowing

Tyler Durden's picture




 

In as-comprehensive-an-explanation-as-we-have-seen of the monetary malfeasance and misunderstanding of the standard Keynesian central-banker, Gloom-Boom-Doom's Marc Faber addressed an instutional audience in the Middle East earlier this year. Faber begins by explaining his (correct) view that 'Keynesian' intervention into the free-market or capitalistic society (with fiscal and monetary measures), in order to 'smooth' the business cycle, has in fact created a more violent business cycle - as they attempt to address long-term structural problems with short-term fixes (or bubbles). His lecture expands from his insight that in 1970 not a single investment bank was public - they were all private partnerships (implicitly playing with their own money as opposed to other-people's - dramatically impacting the risk profile in the world) to the notion that central bank money printing (pushing dollars out the door) does have inflationary symptoms - but they do not necessarily have to show up in wages or CPI in the US (think Chinese wage inflation, or commodity price rises, or Aussie housing bubbles). Central bankers can determine the quantity of money but they cannot determine what we do with those USD bills. Must watch.

Faber covers it all - from macro-economics to energy supply-and-demand and from the consequences of incessant money printing and how to hedge for the long-term.

With volumes still muted, and a general malaise of hand-sitters, it seems now is a great time to spend 45 minutes clarifying your perspective on just what the experimental efforts of our global elite is doing to the world - and whether that is a good thing economically or not... we suspect the conclusion will not surprise you...

 

 

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Wed, 08/22/2012 - 21:14 | 2729161 otto skorzeny
otto skorzeny's picture

Faber's great- but he has been a broken record for the last 4 years. I do agree  that the velocity of $ is basically nil and puts everything in a deflationary trend

Wed, 08/22/2012 - 21:17 | 2729168 BudFox2012
BudFox2012's picture

It's easy for us to get on guys like Faber or Celente for being a broken record for the last 4 years, but this damn thing SHOULD have collapsed already.  That it hasn't is a tribute to the bullshit artists who run things, and the gullible/blind nature of the general public.

Wed, 08/22/2012 - 21:24 | 2729178 otto skorzeny
otto skorzeny's picture

I'm not saying he is not right but it's hard to fight The Bernank and the PPT.

Wed, 08/22/2012 - 21:43 | 2729202 ACP
ACP's picture

Just have to pick your fights. It's very difficult, but this is a 100% TA market.

The manipulators have the money to fuck with the charts, so if TA doesn't go the way it's supposed to, GET OUT FAST, and re-assess.

Wed, 08/22/2012 - 21:52 | 2729211 Pladizow
Pladizow's picture

The G on the belt must be for Gangster:

"If your a partner at Goldman making $10,mil, you wont spend 50% on food, unless you have a very high consumption of cocaine."

"My cost of living went down 30% because I dumped my girlfriend. Well wait until you see the replacement cost"

Mark is a G!

Wed, 08/22/2012 - 22:18 | 2729251 Surly Bear
Surly Bear's picture

I <3 Marc Faber.

Wed, 08/22/2012 - 22:24 | 2729267 TheSilverJournal
TheSilverJournal's picture

Don't fight the FED. Go long silver.

Thu, 08/23/2012 - 00:26 | 2729410 strannick
strannick's picture

Rome didnt fall in a day. Reinhart and Rogoff say its about 4 years from the onset of currency debasement til hyperinflation. Oops thats now.

Thu, 08/23/2012 - 04:33 | 2729548 AldousHuxley
AldousHuxley's picture

keynes said save during good times and use the savings during bad times.

politicians practiced waste during good times and debt financing during bad times.

shit happens when you only follow the parts you like.

 

elites figured out how to beat the fed.....globalization....take printed money and setup factory in china....profits increase and unemployment stays high making labor competition extreme in US.

 

inflation is here.....education, healthcare, housing, energy....all higher than wage growth....

 

it is either low purchase power employment or low consumer prices with high unemployment.

Thu, 08/23/2012 - 05:38 | 2729560 economics9698
economics9698's picture

Bubbles are generally 3-5 years.  We are approaching year 4.  If this one follows the past you should see deterioration around February and then shit for the rest of 2013.

Thu, 08/23/2012 - 08:40 | 2729793 TheSilverJournal
TheSilverJournal's picture

The bubble really started 100 years ago with the beginning of the Fed and the beginning of counterfeiting, picked up pace with Bretton Woods in 1945 by exporting the counterfeits at an outstanding pace to the rest of the world, kicked into high gear Aug 15, 1971 by putting the world on an all out fiat monetary system, the turbos kicked in after the .com bubble crashed with lowering rates to 1%, and now we're nearing top speed with QEasing to infinite and beyond.

Wed, 08/22/2012 - 23:11 | 2729329 Muppet of the U...
Muppet of the Universe's picture

that was just amazing.  Wow, so concrete.  I'm gonna go show my idiot parents and get them to buy gold and silver and platinum.  maybe palladium too... i like how its spelled.

Wed, 08/22/2012 - 21:59 | 2729221 q99x2
q99x2's picture

It is not a fight. It has been 4 years of hard work. When the big easy comes we'll all be looking up into a mushroom cloud anyhow. I'm in no hurry.

Wed, 08/22/2012 - 22:26 | 2729272 Doña K
Doña K's picture

@ OTTO

There are still gamblers out there that believe that they can still make money in these markets even though they know it's manipulated, by anticipating the bernank's moves. (So they claim)

GET OUT PEOPLE! Even if you make a bit, it's capital preservation which is now the most important.

STARVE THE BEAST

Wed, 08/22/2012 - 22:35 | 2729281 jimmyjames
jimmyjames's picture

There are still gamblers out there that believe that they can still make money in these markets even though they know it's manipulated, by anticipating the bernank's moves. (So they claim)

***********

There are other types of gamblers out there that know that sooner or later-the market will blow away bernanke and anyone else who stands in its path-

Thu, 08/23/2012 - 03:17 | 2729526 A Nanny Moose
A Nanny Moose's picture

All that other shit is just white noise. Gravity will only be defied for so long.

Sat, 08/25/2012 - 12:46 | 2737111 Paul E. Math
Paul E. Math's picture

Sometimes falling feels like flying... For a little while.

Thu, 08/23/2012 - 03:25 | 2729528 Element
Element's picture

“Don’t underestimate the power of printing money”, Marc Faber, 12th March 2009.

He expressly warned everyone that this is what would occur.

Or have you all forgotten that he did?

Thu, 08/23/2012 - 04:00 | 2729538 common_sense
common_sense's picture

yes, or how create Hiperinflation giving all the money to bankers, oh great political job¡!!, thanks Obama, we will see you and berny in hell very soon.

Thu, 08/23/2012 - 06:22 | 2729568 MSimon
MSimon's picture

He said the region is culturally interesting. Quite so. Mein Kampf is still a top seller.

Thu, 08/23/2012 - 18:20 | 2730571 Eric L. Prentis
Eric L. Prentis's picture

The financial elite social psychopaths, in conjunction with their political sock puppets, keep doubling down their losing bets by electronically printing money—in order to remain in control, which structurally solves nothing. Consequently, the magnitude of the eventual crash is rising exponentially. When the credit crisis end comes, which started in December 2007, the large-corporation controlled media will blame the wrong people and causes.

This is the Great Game played by the greedy financial elite—who feel no noble civic duty, are pathological liars, have no honor, have no empathy with the suffering of others (that they caused), and no conscience.

Wed, 08/22/2012 - 22:23 | 2729266 johnjkiii
johnjkiii's picture

Be patient. It took from 1917 to 1990 for the USSR to blow itself up. Have a beer & a laugh and keep your eyes on the charts.

Wed, 08/22/2012 - 23:02 | 2729310 Dr. Engali
Dr. Engali's picture

I don't get on them a bit. I think most of us are amazed at how long they have been able to keep the music playing. I have no doubt however that the music will eventually stop.

Wed, 08/22/2012 - 23:22 | 2729354 Knightbk
Knightbk's picture

Thats the problem, you assume it will collapse.

In reality, people are fighting to keep it going.

Thu, 08/23/2012 - 13:16 | 2730878 ATM
ATM's picture

Why would anyone presume that TPTB would not fight to keep their place in society? Of course they would do everything in their powers to maintain the status quo and even enhance it. That's what the printing does afterall. It enriches the few at the expense of the many.

But what we have now is a new (actually old) group of authoritarians such as Obama who don't give one shit about TPTB. They seek to end the current structure and install their own. They don't want to steal from the many, they want to rule the many. 

As i see it we have two sets of actors. One group doing everything in their power to maintain the status quo and another doing everything to bring about it's ultimate end as quickly as possible. Either way the current system has to end the only real question is how fast the real unraveling will take and who grabs power afterwards.

Thu, 08/23/2012 - 03:21 | 2729527 Element
Element's picture

 

 

It's easy for us to get on guys like Faber or Celente for being a broken record for the last 4 years, but this damn thing SHOULD have collapsed already.  That it hasn't is a tribute to the bullshit artists who run things, and the gullible/blind nature of the general public.

 

Complete nonsense, it was Faber in 2008, 2009, and then again in 2010 who said that it will take over ten years for the US to completely collapse, but that when it does, it will be "an absolute catastrophe".

He also famously said this to all those expecting it to occur earlier, “Don’t underestimate the power of printing money.”, on 12th March 2009, which was said just days after global equities bottomed. 

And as I remember, it was Faber who correctly called the bottom on March 6th 2009, on the very day the decline ceased.

Faber, as always has been eerily correct on the macro picture.

 

 

(Not much interested in Celente, he's too busy trying to sell me a crystal ball)

Thu, 08/23/2012 - 10:09 | 2730113 ecoguitar
ecoguitar's picture

I want to add: 

He accurately predicted the gold price to correct by margin as large as 20% in 2011. 

Thu, 08/23/2012 - 13:20 | 2730891 ATM
ATM's picture

Another good macro-predictor is Scott Minard - the Guggi-Guy of Guggenheim. He has been preaching many of the same themes as Faber for the 8 years I've known him. Prdicted the R.E. collapse, the treasury bubble and the printing. He also predicts an end to the dollar via debasement and the need to own some real assets, gold, art, etc. 

He also put together the purchase of the Dodgers. They're a real asset afterall.

Thu, 08/23/2012 - 03:34 | 2729532 The Navigator
The Navigator's picture

BudFox2012 - you got it exactly right - if it wasnt for the Central Planners interferring with another fat finger, it would have collapsed already - BUT, the can kicking can only go on so long as the road is long, and the road is running out. Those that prepped, stacked, and made plans A, B, C, & D won't have spent unwisely. Just keep updated on the changing circumstances and make adjustments accordingly (ie planting long guns in neighbors backyards).

Semper Paratus

Thu, 08/23/2012 - 08:30 | 2729759 BeetleBailey
BeetleBailey's picture

I agree 100% here.

I'm a veteran trader.....seen all types of markets...had tremendous success in the past. This year? None.

In FX..awful.

I trade on fundamentals - and they don't matter anymore. It akin to me forgetting everything I know and blindly going with it - and for some reason, I cannot.

Wed, 08/22/2012 - 22:34 | 2729282 Libertarian777
Libertarian777's picture

U must hate ron paul then, he's been saying the same things since the early 70's

Wed, 08/22/2012 - 23:15 | 2729337 Muppet of the U...
Muppet of the Universe's picture

ron paul is an illuminati shill.  anyone that argues for the presence of central monetary authority is a fucking shill.  ffs, he goes on tv.  wake up.

Wed, 08/22/2012 - 23:49 | 2729387 NotApplicable
NotApplicable's picture

Ron Paul does not argue for a centralized monetary authority.

To suggest so indicates ignorance or maliciousness.

Shill much?

Thu, 08/23/2012 - 00:30 | 2729421 Muppet of the U...
Muppet of the Universe's picture

ron Paul calls for a reorganization and restructuring of the Fed.  Not its disassembly...  To maintain a system of central authority is asking for corruption.

Thu, 08/23/2012 - 01:47 | 2729451 akak
akak's picture

 

ron Paul calls for a reorganization and restructuring of the Fed.  Not its disassembly...

Oh, so Ron Paul's book "End the Fed" is about what, abolishing Federal Express?

You don't know what the fuck you are talking about, or you are outright lying.
So which is it --- are you dishonest, or merely stupid? 

(Both, most likely.)

Thu, 08/23/2012 - 04:35 | 2729549 AldousHuxley
AldousHuxley's picture

Ron paul is gone in 2012....retiring

 

perhaps forced by corporate overlords for exposing too much truth to the masses.

Thu, 08/23/2012 - 03:41 | 2729533 The Navigator
The Navigator's picture

Sorry, couldn't read the rest of your title, was it

Muppet of the Universe

Muppet of the Unicorns

Muppet of the University of Muppet University

Either way, you win, you are crowned the king of Muppets.

You obiously haven't heard or read anything Ron Paul has said or written.

 

Thu, 08/23/2012 - 03:30 | 2729530 Element
Thu, 08/23/2012 - 09:56 | 2730060 Red Heeler
Red Heeler's picture

He's a legend in his own mind.

Thu, 08/23/2012 - 02:45 | 2729513 Hobbleknee
Hobbleknee's picture

When AAPL makes a huge correction, it will be the wait-wut moment that gets things started

Thu, 08/23/2012 - 06:09 | 2729562 TWSceptic
TWSceptic's picture

I rather listen to a broken record that plays the right music and eventually continues playing a nice song, than to the band on the Titanic that will go down with the ship...

Thu, 08/23/2012 - 09:39 | 2729986 Red Heeler
Red Heeler's picture

"Faber's great- but he has been a broken record for the last 4 years."

My favorite broken record moment is when he says, "Every month buy a little gold."

Thu, 08/23/2012 - 10:14 | 2730142 WhiteNight123129
WhiteNight123129's picture

Ok, but what is the outcome of is call to buy equities at 666 on the SPX and to be in Gold at the same time? How did it work out so far?

I mean if you make a call every 4 years but you double your money, I do not care if you make 100 calls or which 60 % are wrong!

That is quality versus quantity, but I guess the people running the show are about quantity of money versus quality of output. For Keynes, spending  $100 on a broken window has the same effect as LanzaTech developping a way to produce Ethanol using carbone monoxid exhaust flue gases from Steel Plants.

 

Sat, 08/25/2012 - 19:51 | 2737767 Tommy Gunner
Tommy Gunner's picture

Faber has never put a time line on collapse... other than to say at the beginning of the crisis it was within 'years'.   He is no dummy - he knows the central banks will fight this to their dying breath...  so it is impossible to time it.

But his macro picture has been correct and he was one of the guys I was listening too when I decided to sell many of my assets in 2007 and buy physical.   Listening to him allowed me to get in at $800+ instead of 1700... 

I also recall the former chairrman of Goldman John Whitehead stating 'this problem is far too big to fix' - then there was this amusing stickman cartoon that was floating around the net at the time - when i watched this within days I was piling even more heavily into gold http://hongkong.asiaxpat.com/Misc/MortgageCrisis.pps

 

Ya sure one could have played the stock market and done as well... and maybe not ...  but what do you do with your market gains?  Cash, stocks and bonds will be toilet paper - so you could flip into gold now but you're buying at double the price so no further ahead.

 

Better to be early than to be eating dog food (after eating the dog).  We all know what is coming - prepare for it.

 

Wed, 08/22/2012 - 21:16 | 2729166 icanhasbailout
icanhasbailout's picture

"missing" inflation, my ass. I just got back from buying a $1.65 box of pasta that was $1.00 two years ago.

Thu, 08/23/2012 - 00:08 | 2729402 LowProfile
LowProfile's picture

Shit, that means the 100lbs of pasta I stocked up on made a 32.5% gain!

Thu, 08/23/2012 - 06:33 | 2729572 ZeroAvatar
ZeroAvatar's picture

You shoulda seen the tiny box of ice cream my wife brought home the other day. One and a half quarts.  It was so tiny, I had to laugh.

 

Goodbye, gallons.

 

Edit: (Oh, and .50 Cents more, too.)

Thu, 08/23/2012 - 08:27 | 2729744 blueridgeviews
blueridgeviews's picture

Bought hot dogs the other day.  1 less hot dog, and $1 more for the package than a year ago. What do I do with 8 buns now?

Sat, 08/25/2012 - 20:04 | 2737784 Tommy Gunner
Tommy Gunner's picture

Maybe he needs to restate the inflation is missing comment and say HYPERINFLATION is missing (so far)

Thu, 08/23/2012 - 07:49 | 2729651 Offthebeach
Offthebeach's picture

Cherry picker. Haven't you listened to out Fed Overlords? "Except for food and fuel"

Trust the system. The Squid and The Whale are doing good. Why? Because like the Fed prophets say, " He that so believe in The Fed, shall never die."

Besides, muppets pelts have never been lower.

Thu, 08/23/2012 - 10:20 | 2730164 WhiteNight123129
WhiteNight123129's picture

You have a mixture of lose money AND demographic pressures combined with constraints in resources. THe same thing happened in XIV century, in mid XVIII century, despite using Silver without bancarisation, soft commodities like Wheat recording increases in prices which had to do with demographic pressures, that was solved shipping people in North and South America and later Australia. Today we have nowhere to ship them. In the XIV century those pressures resulted in lower prices of manufactured goods (leather goods at the time) and higher price of wheat. Inflation will add-up increasingly on this factor. In 1950-60s, only 200 km inwards of coastline was used for agriculture, today only 30% of landmass is not used for agriculture, in the meantime, Mato Grosso, Goias, West Bahia have been used for crops. The land left is probably only good for extensive cattle herds and probably palm oil, not good for soy beans or corn, nor cotton.

 

Wed, 08/22/2012 - 21:18 | 2729170 Anne Ominous
Anne Ominous's picture

Darth Faber is on the marc as always.

Wed, 08/22/2012 - 21:29 | 2729183 dcb
dcb's picture

what faber hasn't processed, and it took me a long time as well.

My rule number one regarding investing

the elites will spend an unlimited amoi=unt of other people's money (the tax payer) to preserve the system that gives thm advantage.

 

If one studoes history all revolutions deal with the have's attempting to preserve their situation, and the have not getting tired of getting fucked.

Wed, 08/22/2012 - 21:54 | 2729220 Pladizow
Pladizow's picture

And how do all these revolutions end?

Wed, 08/22/2012 - 23:29 | 2729361 Things that go bump
Things that go bump's picture

Ask Louis XVI and Marie Antoinette and their children and all their relatives and friends who got caught by the revolutionary tibunal.  Ask the last Tsar and his family and almost everybody he knew.  The Chinese won't even say how many died in their revolution, but estimates are between 49,000,000 and 78,000,000.

Thu, 08/23/2012 - 11:52 | 2730502 akak
akak's picture

 

The Chinese won't even say how many died in their revolution, but estimates are between 49,000,000 and 78,000,000.

Now THAT is what I call "extorting the weak" and "blobbing up"!

Thu, 08/23/2012 - 13:44 | 2731011 TheFourthStooge-ing
TheFourthStooge-ing's picture

akak said:

Now THAT is what I call "extorting the weak" and "blobbing up"!

...and it's not really "farming the poor", it's more a process of plowing them under.

Thu, 08/23/2012 - 03:49 | 2729535 The Navigator
The Navigator's picture

How do all revolutions end? - Same Ole same ole - they hang some of the fuckers, and in a very short time, the fucked sheeple are fucked sheeple again.... and the rich return with a different cloak but still the same wolf.

History is not a mystery, it's just something most won't bother to study.

Thu, 08/23/2012 - 04:49 | 2729551 AldousHuxley
AldousHuxley's picture

when power structures are challenged, it is bloody.

even after the revolution, there's more blood spilled for internal power struggles amongst new elite class.

 

for the most majority of fucked sheeple, there is a reason.....low IQ, genetic disorders, engrained bad cultures, etc.

 

for stupid, ugly obese old hag, revolution isn't going to change her fortune either way.

 

revolutions in US is unlikely, because on a global level, US is still rich compared to others.

Wed, 08/22/2012 - 22:02 | 2729235 reader2010
reader2010's picture

The difference is that this time around the haves have been using the Weapons of Mass Distractions that the havenots are so fond of. 

Wed, 08/22/2012 - 23:32 | 2729365 Things that go bump
Things that go bump's picture

And that is why it is going to be worse than previous convulsions; because it has been delayed.

Thu, 08/23/2012 - 02:07 | 2729505 reader2010
reader2010's picture

Delayed? You mean their delayed adulthood?

Thu, 08/23/2012 - 03:32 | 2729531 Element
Element's picture

@dcb

“Don’t underestimate the power of printing money”, Marc Faber, 12th March 2009.

It is you who didn't understand.

Wed, 08/22/2012 - 21:31 | 2729187 chump666
chump666's picture

Faber was 100% on the money with the current Aug meltup, amazingly well timed and argued that the market would top April highs etc.

He also called the coming September wipeout and 2013 chaos year for equities, which is probably the start of the financial system finally collapsing in on it's self.  Faber has good a grasp of conditions out of Asia, namely China.  So that makes him balanced with his opinions, rather than being too Euro/American-centric.

His newsletter is great read.

Wed, 08/22/2012 - 22:21 | 2729233 vast-dom
vast-dom's picture

i agree. but Faber discusses Mexican stock market circa 79-83 and makes the point that while Mexican Peso plunged, their stock market soared and extrapolates that this may be US market analog today -- perhaps he is right, but he also predicted big corrections in 2013...he said in his above presentation that he doesn't think SP will test the 666 lows in 2009 and that a 200pt correction will be met with QE3, 4 and so forth -- i think QE3 is the last ponzi adjustment and that the US dollar will NOT devalue like the Mexican Peso of 79-83 (ever heard of a Petro Peso?) and thus a major correction precisely because of QE3 (and 1+2) triggering soaring commodity prices (gold and silver esp) will put massive pressure on the bond and equity markets to correct, say, e.g. SP 800 while the dollar, relatively speaking, maintains value and NIRP further punishes.

But I've been calling SP 800 since Sept of last year and have been very wrong to date and yet my narrative remains same: SP 800 precisely because of QE3, which funny enough was in essence alluded to TODAY.

Wed, 08/22/2012 - 22:24 | 2729268 chump666
chump666's picture

The market has priced in QE3 within this Aug meltup.  Not too sure if Faber made the call that the Aug meltup that occurred was from a QE3 priced in, or tale end of earnings being not so bad.  But the ZIRP and money printing argument for this rally falls short, as the USD has been bid out of Asia/Middle East/India, also the US rates/yields are slowly going upward.  Other point is that industrial commodities have collapsed against equity strength.

But I have heard Faber say that if commodities (indust) collapse, or China crashes hard, QE3/4 etc will not be able to offset major commodity deflation. Maybe this is his 2013 bad year scenario.

With the current market today, overbought, waiting for volatilities to pick up: VIX, risk FX options, end month panic etc. To figure out if the correction will turn into a panic. 

Wed, 08/22/2012 - 22:36 | 2729274 vast-dom
vast-dom's picture

maybe you deem me foolishly contrarian but i do NOT believe QE3 is FULLY priced in. If announced expect short-lived rally on top of hopium faux exhorbitiant current levels.

 

and remember earnings are beyond fudged. and as per above Faber more than intimates that Aug will be going much higher than recent "melt up".

Wed, 08/22/2012 - 22:59 | 2729306 Dr. Engali
Dr. Engali's picture

My belief is Qe3 priced in and Ben knows it. So when he does print it it going to have to be big. Probably 2 trillion, if it is any less the market sells off because it's probably priced in a trillion, and Ben can't have the market selling off because the wealth effect is his stated policy.

Wed, 08/22/2012 - 23:08 | 2729318 bnbdnb
bnbdnb's picture

Oil would skyrocket over $120 immediately.

Wed, 08/22/2012 - 23:11 | 2729325 vast-dom
vast-dom's picture

EXACTLY ergo NOT PRICED IN, YET!

Thu, 08/23/2012 - 00:09 | 2729403 chump666
chump666's picture

China data has capped oil price gains.  But again QE3 could be priced, only because equity returns after each QE (1/2) have been poor.  So, the market could be getting in now, an Aug meltup was unusual, with terrible fundamentals, kinda crappy earnings. 

Thus Faber's and others opinion that the market sells hard in Sept, with or without QE3

 

Thu, 08/23/2012 - 00:50 | 2729447 vast-dom
vast-dom's picture

i don't call a 200pt correction in the grossly inflated SP a hard selloff. china data is abysmal as of tonight so what do markets do? they rise on easing HOPES = sheer fucking insanity and inverted more at perverted common sense!

Wed, 08/22/2012 - 23:09 | 2729320 vast-dom
vast-dom's picture

algos ie the market do NOT think. any news with keywords easing QE etc will trigger up instantly. then the reckoning behind algos etc comes into play, or not. maybe this motherfucker goes up ad infinitum from here on in.

Thu, 08/23/2012 - 03:10 | 2729522 Lucius Corneliu...
Lucius Cornelius Sulla's picture

The one constraint that will prevent a dollar collapse is the absolute necessity that interest rates on USG Bonds do not rise.  The bigger the pile of debt, the more vulnerable they are to a bond melt down ... the USG will protect its ability to borrow because its very survival depends on it.

Wed, 08/22/2012 - 21:31 | 2729188 Jlmadyson
Jlmadyson's picture

Velocity of dollars is dead much like this zombie market.

Wed, 08/22/2012 - 22:23 | 2729245 vast-dom
vast-dom's picture

bc velocity of $ is inverse function of CNTRL+P = PANPONZICON

 

we are in the insanity phase of civilization - markets rise and fall on easing HOPES instead of PE and fundamentals is akin to me holding out a turd and convincing you that it is solid gold and you happily pay me 120% above spot.

Wed, 08/22/2012 - 23:55 | 2729393 NotApplicable
NotApplicable's picture

It better be shiny!

Thu, 08/23/2012 - 08:09 | 2729698 TrumpXVI
TrumpXVI's picture

It's up to you to polish it.

It's not difficult.  All you have to do is rub it real hard against your shirt.

Wed, 08/22/2012 - 21:34 | 2729189 km4
km4's picture

Faber's best point at 14:52 and the key takeaway

the US will have to pursue expansionist monetary policies to monetize debt continuously and that will have a negative impact on US $

 

Wed, 08/22/2012 - 21:35 | 2729191 bob_dabolina
bob_dabolina's picture

What caused the great inflation of the 70's?

I would like to know. I've studied it and still can't figure it out.

What was the true cause of those long lines at the gas pump? I have axioms but nothing definitive though the event interests me greatly.

Wed, 08/22/2012 - 21:57 | 2729226 sinner
sinner's picture

Read the FOFOA article "It's the Flow, Stupid." and "Flow Addendum"

Wed, 08/22/2012 - 21:58 | 2729227 TheSilverJournal
TheSilverJournal's picture

The expansion of the money supply. The Britain Woods System allowed the central banks of the world to take in their dollars as if they were "as good as gold," due to gold being exchangeable at $35 / oz until 1968. This set exchangeability allowed the US to cheat in the '50s and '60s by lowering rates. The low rates of the '50s and '60s were achieved artificially by printing. The high rates of the '70s and '80s were the result of sucking up the inflation.

Wed, 08/22/2012 - 21:46 | 2729205 hannah
hannah's picture

doesnt take a genius to know we are fucked...i want to know when we crash.

Wed, 08/22/2012 - 22:01 | 2729232 TheSilverJournal
TheSilverJournal's picture

12 12 12?????!??!!!!!!!!!???????????????!!!!!!!!!!!!!!!!!!!!!!?!?!?!??!?!?!!!!!????!?!?!!!?????!??!??!!!?!???????!??!??!???!?!?!?!??!?!???????????!??!?!???!?!?!!??!?!??!??!???????????????????????????????!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Wed, 08/22/2012 - 23:38 | 2729375 DCFusor
DCFusor's picture

Taking your year numbers at face value (I didn't check), so you are saying printing in the 50's over a ten year period created inflation in the 70's over a ten year period.  Then by your numbers all you have to do to predict the timing (yeah) is add 20 years to the time our own printing got serious by whatever defintion you use for that.  So, when did we start excessive printing...

Thu, 08/23/2012 - 09:00 | 2729850 TheSilverJournal
TheSilverJournal's picture

1913 with the beginning of the Fed. But really the excessive printing started before that because the Fed was created to bail out the fractional reserve banking system. Greenspan lowered rates in the '90s leading to the .com bubble and lowered them to 1% to postpone the bad effects of the .com bubble bursting, leading to the real estate bubble, and now the printing is going on to epic proportions to postpone the bad effects of the bursting of the real estate bubble.

No, you can't just predict the timing by adding 20 years. The counterfeitting started basically with the Fed, which was 100 years ago, forming a ponzi scheme. The only way to keep the ponzi going is to keep on bringing in new entrants (more currency). Not only is the rate of currency creation important, but the amount that the US is able to export the countefeit notes to other central banks and even the rate that technological advances lead to gains in productivity is important.

Wed, 08/22/2012 - 23:12 | 2729332 Schmuck Raker
Schmuck Raker's picture

My charts are telling me it'll be a Tuesday. Trade accordingly.

Wed, 08/22/2012 - 21:50 | 2729209 reader2010
Wed, 08/22/2012 - 21:53 | 2729216 Atomizer
Atomizer's picture

You’ll enjoy this folly

 

Keynesian Monkey Pay Theory

 

This study needs a third cage, enclosing Paul Krugman. We have to conduct a study on how he would trade a rock for a polished turd. Would Krugman later pass off the polished turd to receive food?

Wed, 08/22/2012 - 21:58 | 2729229 disabledvet
disabledvet's picture

Imagine for a moment being Hitler in the bunker in '45 and realizing that for years you have unwittingly been giving all the information your enemy needs to know in order to destroy you. In short "your bunker wasn't deep enough." (but it was the bunker in your head of course.)http://en.wikipedia.org/wiki/Siege_mentality Of course the end was as obvious as it was inevitable. Probabilistic outcomes of extraordinary mathematical certainty were being created well before WWII with amazing accuracy...and the name of the company was IBM. To give actual "data" to this claim just look at the difference between the Russian and American space programs. In Russia they were constantly "firing their rockets"...well into the 80's! (better science was the result in my view BTW)...but this wasn't true in the USA...the USA was MODELLING their rockets...and THEN firing them "to see if the outcome matched the expected result." This is a HUGE difference because in creating such..."software"...i can then take what i have created "in the world of expectation science" and "cross platform this baby to the very existence of human behavior and even life itself." You'd think someone might want to regulate that! But NOOOO..."that's the money department" and "those people who do that stuff are kinda weird anyways." The problem with "expectation science" however is that at some point "we need to launch that thing"...failure is always an option...and certainly should be considered the primary outcome. Hence as Wall Street realized in 2008 "being properly capitalized is everywhere and always the point." And here we are...2012...and our banks are STILL undercapitalized. The irony of course is that "we have never LAUNCHED more capital"...which says to me "there is something wrong with your modelling folks." More than likely it comes from an "irony"---in creating an "expectation we are in fact creating nothing more than fear...and thus when get that fear we suffer from an overwhelming problem of confirmation bias...which then goes right to our head...but only in the egotistical sense of the term."http://s56.photobucket.com/albums/g162/lmcommish/?action=view&current=2f...

Wed, 08/22/2012 - 23:11 | 2729328 ReactionToClose...
ReactionToClosedMinds's picture

an interesting post DisAblVt

confirmation/expectation bias ... then add the behavior mod aspect typical of human dexterity/adaptability  ..... and you get a polluted result which you 'rationally' believe and act on ... recursively

Wed, 08/22/2012 - 23:47 | 2729382 Atomizer
Atomizer's picture

DisAblVt:

In cage three, our test study decides to collaborate with the two control lab samples.

 

Krugman states, I tricked the scientist into giving me a rock for this priceless riches.

Krugman: If both of you can ration that food, we’ll escape to my planation and create a new kingdom of wealth & prosperity.

Krugman: Your great courage to feed me will unlock great wealth for you. Only you know that I hold the most richest possession of this world.

Krugman: <inner thoughts> I hope they never find out it’s just a polished turd. 

Thu, 08/23/2012 - 00:36 | 2729426 hannah
hannah's picture

all this mumbo jumbo talk talk talk...i am a person of ACTION. i did the experiment tonight. i dropped my pants and partied with my monkeys........ha!

Thu, 08/23/2012 - 02:49 | 2729517 vato poco
vato poco's picture

You get downvoted 'cause you said "probabilistic". What next? "Paradigms"? "Hueristics"? Bah. Stop talking like a guy who wears corduroy jackets with elbow patches, has a beard, & smokes a pipe. 

"All the Great Things are simple, and many can be expressed in single words: Freedom, Justice, Honor, Duty, Mercy, Hope." - Churchill

Wed, 08/22/2012 - 22:00 | 2729230 bugs_
bugs_'s picture

is there Keynesian non-folly?

Wed, 08/22/2012 - 22:03 | 2729236 tu-ne-cede-malis
tu-ne-cede-malis's picture

Two points of contention with the Poneytailed one:

1. China collapses.  Yes, they are centrally planned.  Central planners cannot plan correctly, which leads to malinvestment, civil unrest, busts, etc.  However, the citizens actually save money.  Savings creates investment.  The Chinese authorities, reportedly, are very hands-off with the small business creators.  So fine, China crashes, but long term they will come out just fine (certainly better than the USSA).

2. U.S. Real Estate - specifically in the South.  Maybe Marc is right, these prices are severely distressed.  As has been noted on ZH many times over, the NRA and others continue to call a housing bottom.  I still see the housing market falling at least another 10%.

Wed, 08/22/2012 - 22:09 | 2729243 Tinky
Tinky's picture

a) it is a mistake to attempt to time purchases with the absolute bottom, and 10% is negligible.

b) the key point that Faber fails to address is that it will be a long time before housing prices in the South (especially oversaturated FL) rebound significantly. So, what does an investor do with the "cheap" house(s) for years?

Wed, 08/22/2012 - 23:05 | 2729315 Dr. Engali
Dr. Engali's picture

You rent them to snowbirds.

Thu, 08/23/2012 - 08:29 | 2729755 BidnessMan
BidnessMan's picture

As energy prices continue to rise, more and more elderly will move south to "God's waiting room" because they can no longer afford to stay warm.  And as Illinois, Michigan, Massachusetts, and the other nanny states go bust and can't deliver services.  More northern cities will go the way of Detroit....  where housing prices have dropped to a dollar if you will just fix it up and live there.

Wed, 08/22/2012 - 23:08 | 2729319 Dr. Engali
Dr. Engali's picture

The National Rifle Association is calling the housing bottom in the south? That's a little out of their expertise isn't it?

Thu, 08/23/2012 - 10:21 | 2730171 shovelhead
shovelhead's picture

Nah,

"Y'all buy this house or I'll shoot you in the face."

Wed, 08/22/2012 - 22:03 | 2729237 This is the end
This is the end's picture

My working hypothesis is that when money/debt creation is primarily done in the private sector it leads to inflation because money supply increases and so does velocity (i.e. 1920s, 1970s, 2000s). But when the money/debt creation is done primarily in the public sector (i.e. 1930s, 2008-present, Japan 1990-present) it leads to a downward spiral in velocity as all of the new money ends up in the government debt ball. What is the velocity of the $16 trillion stuck in US bonds? I would guess really close to zero. Same goes for Japan's even bigger debt ball. They have double our debt and have been doing QEs for an extra decade and have been struggling with negative growth and defaltion. As they continue to do the same money printing it should continue to choke off the private economy as a greater and greater percentage of the money supple ends up in the debt ball pushing velocity closer and closer to zero. It blows up sometime before the velocity gets to zero obviously...

Wed, 08/22/2012 - 22:21 | 2729264 Go Tribe
Go Tribe's picture

That's a very good point, bonds sucking up money that should be invested for growth. I never thought of the bubbles as tying up capital that should be used elsewhere.

Wed, 08/22/2012 - 23:15 | 2729338 ReactionToClose...
ReactionToClosedMinds's picture

I get your point but alos do not forget Japan has a death spiral demographic leveraged by their cultural homegeneity focus (Sparta? .... ultimately not enough warriors to replace the leadership caste) ... USA does not replicate Japan on that front

Wed, 08/22/2012 - 22:04 | 2729238 This is the end
This is the end's picture

More QE coming very soon (i.e. Sep meeting) says the Fed I mean Hilsenrath

 

http://online.wsj.com/article/SB10000872396390444358404577605451567479764.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Wed, 08/22/2012 - 22:26 | 2729265 Everybodys All ...
Everybodys All American's picture

That is complete and total bs.

 Interest rates are at historic lows, their balance sheet is bloated and leveraged to the hilt, and the S&P is near a 4.5 year high. This is a jawbone deluxe once again by a twenty something kid.

Wed, 08/22/2012 - 22:31 | 2729277 JR
JR's picture

Has the folly of the Brit’s J.M. Keynes corrupted the soul as well as the markets?

You would think that with the Brits’ expertise in nakedness and sex-cavorting by the fancy royals that they’d get a little more serious about freedom in their own backyard, mainly at the Ecuadorian Embassy.

The seizure of Julian Assange is not a snicker-snicker item for YouTube like Naked Harry. Instead, the Brits’ exhibit a lack of moral outrage at the subversion of free speech and the imprisonment of a political prisoner within their borders on a probable trumped up “sexual complaint” by cavorting Swedish sex providers to shut Assange up. Has the Brits’ independence been compromised by their partnership with the money and the power, namely America’s international oligarchical Corzinian justice?

It’s important to remember that the American experience of free speech is based on a country founded on the principle of individual rights and a government operated through representation of the people themselves.

Not so Britain. As Albert Jay Knock explains in his “Our Enemy the State”:

The British system “did not originate in the common understanding and agreement of society; it originated in conquest and confiscation. Its intention, far from contemplating ‘freedom and security,’ contemplated nothing of the kind. It contemplated primarily the continuous economic exploitation of one class by another, and it concerned itself with only so much freedom and security as was consistent with the primarily intention; and this was, in fact, very little. Its primary function or exercise was not by way of (Thomas) Paine’s purely negative interventions upon the individual, but by way of innumerable and most onerous positive interventions, all of which were for the purpose of maintaining the stratification of society into an owning and exploiting class, and a property-less dependent class. The order of interest that it reflected was not social, but purely anti-social; and those who administered it, judged by the common standard of ethics, or even the common standard of law as applied by private persons, were indistinguishable from a professional-criminal class.”

Thu, 08/23/2012 - 04:00 | 2729529 Bringin It
Bringin It's picture

Re. Video So far so good, but at 1:23 China - "...We feel that a Western recovery is unlikely until they reform their entitement programs."  I guarentee you China would be more likely to say "...until they reign in their military adventurism and defund their bloated out of control military spending / industrial complex."  This is kind of the Romney/Ryan politics.  They talk about unions and the poor entittlements, forgeting to mention corporate welfare, distorted markets and military aggression.  Thought barriers that Ron Paul was brave enough to challenge.

For the record the 2-party system is an illusion.

Wed, 08/22/2012 - 22:49 | 2729296 tony bonn
tony bonn's picture

anyone who attributes all of the economic voodoo to keynesianism is a few watts short of a light bulb....the monetarists are the leading theoreticians and practitioners of economic corruption today....on the other hand, keynesianism and monetarism are two sides of the same corrupt coin so confusion is understandable...

Wed, 08/22/2012 - 22:53 | 2729297 ebworthen
ebworthen's picture

"Central bankers can determine the quantity of money but they cannot determine what we do with those USD bills."

Exactly.  The monetary health of individuals is sacrificed for that of the central planner, the bureaucrat, and the bankers; removing the invisible hand and replacing it with the iron fist.

People can always choose, but so many are victims to the manipulated markets in 401K's, IRA's, and Pensions or captive savings once they have retired.

Thus, the strength of precious metals and many choosing to downsize and repudiate debt.

Wed, 08/22/2012 - 23:03 | 2729313 blindman
blindman's picture

from link above @ buzz...
.
"In 1996, Paul Krugman summarized the post-Nixon Shock era as follows:

The current world monetary system assigns no special role to gold; indeed, the Federal Reserve is not obliged to tie the dollar to anything. It can print as much or as little money as it deems appropriate. There are powerful advantages to such an unconstrained system. Above all, the Fed is free to respond to actual or threatened recessions by pumping in money. To take only one example, that flexibility is the reason the stock market crash of 1987—which started out every bit as frightening as that of 1929—did not cause a slump in the real economy. While a freely floating national money has advantages, however, it also has risks. For one thing, it can create uncertainties for international traders and investors. Over the past five years, the dollar has been worth as much as 120 yen and as little as 80. The costs of this volatility are hard to measure (partly because sophisticated financial markets allow businesses to hedge much of that risk), but they must be significant. Furthermore, a system that leaves monetary managers free to do good also leaves them free to be irresponsible—and, in some countries, they have been quick to take the opportunity.[6]" ..
.

Wed, 08/22/2012 - 23:28 | 2729360 khakuda
khakuda's picture

Outstanding. Thanks ZH!

Wed, 08/22/2012 - 23:52 | 2729370 sitenine
sitenine's picture

Great lecture, but WTF? - What the hell kind of Faber video doesn't include the slides?  Classic though, because the dumbshit filming it realizes that he's a complete idiot about 36 minutes into it.

Thu, 08/23/2012 - 00:24 | 2729414 q99x2
q99x2's picture

He was very interesting. I liked his discussion about war with China over oil in the beginning and then at the end the home in the country side due to biological war.

He did say that stocks will hold their relative value due to money printing.

Commodities rise in times of war but volatile. Oil a plus. And his comment about owning the entire Argentinian stock market for 176 million all caught my ear.

Oh and gold not in a bubble. But I think it is up 1.4% again tonight.

He seems to think the US is trying to stop China's growth at this time by creating chaos in the middle east. That one shook me a little because WWIII might just be around the corner. Although China is gaining access to the oil field off the coast of the Philipines that has reserves equal to 80% of Saudi Arabia. I guess if China is going to make a military move against the US it will be during the upcoming war on Iran.

Gloom Boom and Doom.

Thu, 08/23/2012 - 01:40 | 2729490 putaipan
putaipan's picture

pretty bright for a sophmore....

 

Thu, 08/23/2012 - 00:40 | 2729433 Stuck on Zero
Stuck on Zero's picture

Our breed of Keynesian bankers are never wrong.  They hand themselves trillions and then see that the economy is getting worse. So they hand themselves more money.  They are winners.

 

Thu, 08/23/2012 - 01:31 | 2729478 donpaulo
donpaulo's picture

 

"The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part."

Dr Marc Faber

Thu, 08/23/2012 - 03:55 | 2729536 EmileLargo
EmileLargo's picture

Why are Keynesians making policy decisions after the debacle of the 1970s? Simple. Academia breeds parasites that like to feed off government favours (e.g. Pauk Krugman). And, academics decide economic policy (especially monetary policy).

Thu, 08/23/2012 - 06:29 | 2729558 falak pema
falak pema's picture

we are all Keynesians on the downside, as government intervention is now the panacea after TARP and Qe... made obligatory to save those who run society by their very own crony surrogates in political power! 

The real question is to ask yourself WHY from 1982 onwards did we get to TARP and government interventionism; when RR and Maggie had thrown open the whole capitalistic party to the Private Sector barons, as their political MOUTHPIECES?

Its the FIRE economy bubble of capitalism, in post industrial "get rich quick quarterly report thinking and Nike-Walmart outsourcing", that started the whole financialised shooting match that has led to this impending fiat Armageddon.

We are now playing Monday morning quarter backing to put the blame on government interventionism, precisely after the catastrophe of unfettered private sector monopoly play for thirty years. 

Marc Faber is defending his OWN kind. It's easy now, to shift the blame on government. When in fact government of, for, and by the Oligarchs has been the driving force of western civilization under the deregulated RR/Maggie doctrine.

Nixon started the government scam in 1971 and RR/M compounded it in their runaway conception of elitist capitalism gone berserk. Nobody understood what Jacques Rueff clearly pointed out in his final testimonial of 1972 : the monetary sin of the west (aka the repeal of BW).

http://www.cmi-gold-silver.com/pdf/monetarysin.pdf

Now the bull having rampaged the china store, somebody has to do the cleaning up and its a mess. A huge, stale bowl of cold, inextricable spaghetti called the financialised world of crony capitalistic derivative steroids fed banking, which has to unwind sooner or later. Shades of FDR and 1930s...only worse, as the State is now part and parcel of the scam!

The TBTF have the upper hand!

Head from the nuclear dugouts! 

Ps : on the whole question of stable monetary system, we have to understand that Keynesianism is a BYPRODUCT of the Central Bank + Fractional Reserve banking Mantra. When so much power is given by government decree to a private institution (FEd) and compounded by fractional reserve private banking, the Keynesian doctrine's raison d'etre is born. Government intervention seems to be the logical consequence to right the wrong of the original sin : giving inordinate power to a privately run central bank; the ROthschilds/Morgan monopoly clique in 1913. 

1929 proved that truly. But in 1971-2008 period the situation has become more complex as post war Keynesianism has made government interventionism a recurrent institution and crony capitalism went berserk, in hands on collusion with major banks around the fiat debt pile build up of petrodollars. 

We have to go back to simpler and more arms length monetary systems based on hard commodity standards (austrian school logic). But this means the demise of current Pax Americana construct and USD hegemony...WHo is going to bell THAT cat?

Thu, 08/23/2012 - 06:20 | 2729567 new game
new game's picture

MF gets it right in the future because he see's the past and quantifies the results and CAN see that these factors

will replicate and the results are actually different but the same(different bubbles). Now you can quite work and copy his advice.

50 percent pm, silv and gold as core(nut). 50 percent oil and nat gas as trades...

makes the payments

just sayin...

ps. short apple very soon-wonder what MF thinks about that for 25 percent allocation?

Thu, 08/23/2012 - 08:09 | 2729696 adsanalytics
adsanalytics's picture

The massive government transfers (after the jump) have not sufficiently helped get the US economy out of the sluggish cycle only adding to the 90% debt/GDP danger point. The main issue is that the political system is sufficiently captures by special interests that it cannot help but dole out goodies - which only serves to maximize its electoral chances.

http://www.adsanalytics.com/dashboard/docs/dashboard.php?treepage=tree_d...

J.S.

Thu, 08/23/2012 - 14:40 | 2731245 chaartist
chaartist's picture

marc has a nice thought about china and energy in the video. I think China invested  a lot in buying egypt because of the energy security if China is 95% dependent on middle east oil. It could be interesting.

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