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"If there's one institution in the US that consistently and repeatedly messes up everything, the Federal Reserve is that institution."
So says famed investor Marc Faber in an interview he gave to ChrisMartenson.com this week. In it, Chris and he dive deep into the Fed activity (encouraged by Washington and Wall Street) responsible for the current severe health of our economic system. Both feel that once you understand the nature of the critical role the Fed now plays, you have much better clarity into what the most probable outcomes for our economy and financial markets will be.
Click the play button below to listen to Chris' interview with Marc Faber:
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Read the Transcript of the Podcast
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In this podcast, Marc explains his views on why:
- Government intervention into the free markets has been increasing since the early 1980s (S&Ls, Mexico, LTCM, etc) and is the root cause of our issues, as each intervention brings the system further off track
- The principal vehicle for this intervention, the Fed, has a near-perfect track record of creating unsustainable asset bubbles (to which it is largely blind) when it intervenes
- Since its founding, the Fed has been dedicated to expansionary monetary policy. When looking at history, there's an argument to be made that per capita price management in the US was better under the gold standard we had before the Fed.
- We're on a direct path to higher inflation, despite the Fed's preference for raising the deflation spectre and citing the low (and ridiculously-calculated) CPI.
- While the Fed is printing money with abandon right now (e.g. buying all new Treasury issuances for the next six months), doing so is raising the risk of a hyperinflationary currency collapse.
- US government bonds are a disasterous investment going forward (even if the deflationists are right).
- The revolving door between Wall Street and Washington motivates our leadership to preserve the status quo, which is corrosive to markets because smaller investors are waking up to the fact that the rules are stacked in favor of the big players. Investing as we have historically thought of it is dead.
In Part 2: Prognosis for 2011 (for enrolled ChrisMartenson.com members - click here to enroll), Marc details his thinking on how the endgame will play out, as well as his specific outlook for 2011.
Dr Faber publishes a widely read monthly investment newsletter "The Gloom Boom & Doom Report" report which highlights unusual investment opportunities, and is the author of several books including “TOMORROW'S GOLD – Asia's Age of Discovery” which was first published in 2002 and highlights future investment opportunities around the world. “ TOMORROW'S GOLD” was on Amazon's best seller list for several weeks and is being translated into Japanese, Chinese, Korean, Thai, and German. Dr. Faber is also a regular contributor to several leading financial publications around the world.
Between 1970 and 1978, Dr Faber worked for White Weld & Company Limited in New York, Zurich, and Hong Kong. Since 1973, he has lived in Hong Kong. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK) Ltd. In June 1990, he set up his own business, MARC FABER LIMITED, which acts as an investment advisor and fund manager.
| Attachment | (click to download) |
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 | Marc_Faber_transcript_01_15_11.pdf |
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Great interview! Thanks Chris.
Always enjoy listening to Dr Faber. Thanks
I too enjoy listening to Marc Faber. However, I am finding it increasingly simplistic listening to Austrians blame our economic problems on government, and that the reason the US economy stopped growing years ago was because of government intervention. No, the US economy stopped growing because it matured and couldn't grow anymore, and manufacturing moved over to China where the free market allows factories to make things really cheaply because they are permitted to pollute and increase cancer rates in the general population (externalize their true costs). The US government intervention which began decades ago was a vain attempt to stimulate further growth and keep the good times rolling, but of course has failed in the long term because it applied flawed Keynesian policies. More importantly, the reason this government intervention failed was because the US economy COULDN'T grow anymore. Few want to admit this and recognize that our economic systems are fundamentally flawed because they require perpetual growth in order to function in a real world which cannot. Thankfully, Chris does understand this, at least in his discussion of peak oil, but I don't think people really appreciate the seriousness that this situation has reached. It goes much much deeper than just peak oil and the energy needed to drive our cars. Trying to fix the economic problems with further growth is like Bernanke printing up more debt to fix previous debt. Growth is the problem, not the solution.
Austrians continue to put forth the idea that the private sector is inherently more efficient than government because it has an internal correction mechanism which allows insolvent instututions to go bankrupt and thus clear the system. This is true only for the smaller mom and pop operations. For the large corporations, when they fail, they just take over the government to prevent a failure. Now, the private sector banks and oil companies have gotten so big that they have become the US government (how many lobbyists are there for every poltician? This used to be an issue of concern a few years ago but now I wonder if it's a moot point since lobbyists are probably no longer needed.....) Any talk of private sector versus public sector is nonsense, because there is no such distinction anymore in any entity of significant size beyond the above mentioned mom and pops. We are living under corporate fascism. Blaming this economic mess on "government" is nonsensical. It's simply corruption and a flawed monetary system to its very core, end of story. It crosses across both the left and right spectrum.
The history of corruption and market manipulation by the hands of the private fossil fuel industry in North America (operating in a "free market" over much of this period before it finally became government in the Bush administration) is as horrendous as that of the Fed, and is in my opinion one of the main causes of the destruction of the US. The trillions wasted on wars to secure oil, the trillions stolen from consumers by forcing them to buy expensive oil products when the alternatives are much much cheaper, the complete destruction of the US's advanced public transportation network last century, it's staggering. Those "free markets" the Austrians admire have merely allowed the oil industry to get so big that it manipulates the energy markets in order to maximize the revenue milked from consumers. The government allows and participates in this because they also get tax revenues. Both have colluded to use patent manipulation to keep alternatives off the market, all at the consumers' and environment's expense. How can one expect anything like free market price discovery in a market like this without some heavy regulation?
Not that free market price dicovery is efficient or desirable anyways, despite what Austrians would have you believe. The free market preferentially promotes economic activity which externalizes its true costs onto other people in other places at other times. How is this efficient? All the free market optimizes is the 5 year profit horizon of those lucky enough to be on the giving end of those externalized costs. While certain markets deserve to be freer than others, others require heavy regulation with subsidies and taxes to more fairly massage activity. The world's a complex place, and the Austrians' thought experiments leading to the conclusion that "free markets are good, manipulated ones are bad" just doesn't cut it in the 21st century. It's going to require some deeper analysis than that.
And in justification for a gold standard, I am told that the expansionary environment which the US enjoyed over its distant past while on a gold standard is a good thing and an example of something that we should strive for after the US mess sorts itself out and new currencies are put in place (whenever and however that happens). But in reality, further economic growth is the absolute last thing the world needs. Not only is it undesirable, but it is also impossible. The planet simply cannot support more growth. There is not enough productivity left to do so.
It is up to the economists to bring themselves into the 20th century and figure out a new economic system that can function in a zero growth environment. It is up to the scientists and engineers to explain why this is both necessary and inevitable, and to bring forth the best technology that will help in this endeavour. Economic growth will stop, and soon. That is the unfortunate truth, regardless of whether or not Austrians or Keynesians continue to convince themselves otherwise.
Actually, money does grow on trees. To be more accurate, wealth grows on plants. http://markbc.net
Chris,
Thanks for a great interview with Marc Faber. I read and listen to him often. I have to say hats off to you for asking very good questions as an interviewer. The answers only come when good and well defined questions are asked. I am looking forward to part II. You are a super "information scout."
Tommy
I too enjoy listening to Marc Faber. However, I am finding it increasingly simplistic listening to Austrians blame our economic problems on government, and that the reason the US economy stopped growing years ago was because of government intervention. No, the US economy stopped growing because it matured and couldn't grow anymore, and manufacturing moved over to China where the free market allows factories to make things really cheaply because they are permitted to pollute and increase cancer rates in the general population (externalize their true costs). The US government intervention which began decades ago was a vain attempt to stimulate further growth and keep the good times rolling, but of course has failed in the long term because it applied flawed Keynesian policies. More importantly, the reason this government intervention failed was because the US economy COULDN'T grow anymore. Few want to admit this and recognize that our economic systems are fundamentally flawed because they require perpetual growth in order to function in a real world which cannot. Thankfully, Chris does understand this, at least in his discussion of peak oil, but I don't think people really appreciate the seriousness that this situation has reached. It goes much much deeper than just peak oil and the energy needed to drive our cars. Trying to fix the economic problems with further growth is like Bernanke printing up more debt to fix previous debt. Growth is the problem, not the solution.
Austrians continue to put forth the idea that the private sector is inherently more efficient than government because it has an internal correction mechanism which allows insolvent instututions to go bankrupt and thus clear the system. This is true only for the smaller mom and pop operations. For the large corporations, when they fail, they just take over the government to prevent a failure. Now, the private sector banks and oil companies have gotten so big that they have become the US government (how many lobbyists are there for every poltician? This used to be an issue of concern a few years ago but now I wonder if it's a moot point since lobbyists are probably no longer needed.....) Any talk of private sector versus public sector is nonsense, because there is no such distinction anymore in any entity of significant size beyond the above mentioned mom and pops. We are living under corporate fascism. Blaming this economic mess on "government" is nonsensical. It's simply corruption and a flawed monetary system to its very core, end of story. It crosses across both the left and right spectrum.
The history of corruption and market manipulation by the hands of the private fossil fuel industry in North America (operating in a "free market" over much of this period before it finally became government in the Bush administration) is as horrendous as that of the Fed, and is in my opinion one of the main causes of the destruction of the US. The trillions wasted on wars to secure oil, the trillions stolen from consumers by forcing them to buy expensive oil products when the alternatives are much much cheaper, the complete destruction of the US's advanced public transportation network last century, it's staggering. Those "free markets" the Austrians admire have merely allowed the oil industry to get so big that it manipulates the energy markets in order to maximize the revenue milked from consumers. The government allows and participates in this because they also get tax revenues. Both have colluded to use patent manipulation to keep alternatives off the market, all at the consumers' and environment's expense. How can one expect anything like free market price discovery in a market like this without some heavy regulation?
Not that free market price dicovery is efficient or desirable anyways, despite what Austrians would have you believe. The free market preferentially promotes economic activity which externalizes its true costs onto other people in other places at other times. How is this efficient? All the free market optimizes is the 5 year profit horizon of those lucky enough to be on the giving end of those externalized costs. While certain markets deserve to be freer than others, others require heavy regulation with subsidies and taxes to more fairly massage activity. The world's a complex place, and the Austrians' thought experiments leading to the conclusion that "free markets are good, manipulated ones are bad" just doesn't cut it in the 21st century. It's going to require some deeper analysis than that.
And in justification for a gold standard, I am told that the expansionary environment which the US enjoyed over its distant past while on a gold standard is a good thing and an example of something that we should strive for after the US mess sorts itself out and new currencies are put in place (whenever and however that happens). But in reality, further economic growth is the absolute last thing the world needs. Not only is it undesirable, but it is also impossible. The planet simply cannot support more growth. There is not enough productivity left to do so.
It is up to the economists to bring themselves into the 20th century and figure out a new economic system that can function in a zero growth environment. It is up to the scientists and engineers to explain why this is both necessary and inevitable, and to bring forth the best technology that will help in this endeavour. Economic growth will stop, and soon. That is the unfortunate truth, regardless of whether or not Austrians or Keynesians continue to convince themselves otherwise.
Mark_BC
Dr. Faber doesn't blame the U.S. government. Rather, he faults the Federal Reserve for the majority of U.S. economic problems (as well as much of the worlds' economic problems). If you meant the Federal Reserve or meant to include the Federal Reserve, when you wrote "government", it wasn't clear to me. I invite you to view
The American Dream at http://www.youtube.com/watch?v=ZPWH5Tlbl...
as to how the Federal Reserve is accomplishing much of this, and for some distinct difference with the government.
I vote, I supported candidates, I ran for office, I hoped for change in the corporate plutocracy we call federal government. However, without opening up the Fed, allowing competing currencies, and changing the Fed's longstanding deathgrip on the most important commodity in a free market - the currency, we are resigned to prepare for a new quality of life in a new standard of living. This is regardless of the president, congress, political parties, and actions individual states may be taking.
In my opinion, the Austrians cite the Federal Reserve and inflation often because a central bank, along with its' fiat currency monetary policy, is often the single largest, and most damaging, intervention in a theoretical free market economy.
To Mark_BC,
I agree. I would be interested to know what you think about the ideas presented in the movie "Zeitgeist Addendum", which may still be available for free on Google Videos. It proposes that the earth has an unlimited source of non-polluting, free geothermal energy, (free after massive investment in developing the infrastructure to tap into it and distribute it). Therefore, since a unit of money represents a unit of energy, there will be no more need for money when energy is free. I have leaned toward the "doom and gloom" assessments of future scenarios since the late 1960's. After viewing this movie, I now have hope that humans will eventually live in harmony with each other and with the environment, perhaps even in my lifetime.
Corvina
Amen to Mark_BC, and washouri.
I too have little hope in keynesian or austrian solutions, or in any reforms to capitalism and the monetary system. It is THE monetary system that will always be the problem and will lead to our destruction.
Zeitgeist Addendum and what it proposes is great, and yes it is radical. But more and more of us are starting to see that a transition away from money all together is our only hope. I am in fact quite hopeful with the January 15th global premier of "Zeitgeist: Moving Forward". It will be available on the internet for free on January 25th, if you can't make a screening in your area.
I appreciate the transcript. Sometimes I would rather read than listen. In this case, that was especially true. While I have a high regard for Marc Faber, i really can't stand his voice and also have trouble with his accent. I wish a transcript was available for Part II.
Travlin
You can always trust your government -- to do anything necessary to preserve itself. Travlin
I appreciate the transcript. Sometimes I would rather read than listen. In this case, that was especially true. While I have a high regard for Marc Faber, i really can't stand his voice and also have trouble with his accent. I wish a transcript was available for Part II.
Can't... resist... joke... Yeah, his accent is a "failer" isn't it ...
But I personally like it!
Samuel
Blaming this economic mess on "government" is nonsensical. It's simply corruption and a flawed monetary system to its very core, end of story.
If the monetary system is flawed, and the Constitution puts the responsibility of choosing the monetary system in the hands of Congress, then blaming "government" seems to make sense. I might even be willing to give them some credit if they would put an end to debt-based money, but I'm not holding my breath.