Tuesday, July 21, 2009 0 comments ++[ CLICK TO COMMENT ]++

Marc Faber interview with Newsmax.TV

I ran across a blog called Consequences Unintended and it had a video interview of Marc Faber, conducted by Newsmax.TV.

The extreme AustEcon believer that he is, Faber trashes everyone, but especially the Federal Reserve*. I think he also mistakenly believes that economists Mankiw and Krugman have called for another bubble to be created. He also, like many that support pure free-markets, dodges the question about what to do now; instead, he lambasts the Federal Reserve actions in the past, especially the FedRes-influenced private market bailout of Long Term Capital Management in 1998. This won't be shocking to Marc Faber followers but the mainstream may also be shocked with his calls for half of US government employees to be fired, and the other half who don't do any work to actually start working. Yes, it's a mystery how a left-leaning guy like me could put up with him but I guess it's kind of like how there are some right-leaning individuals who read everything Paul Krugman says or every book John Maynard Keynes wrote :)

In any case, here are a few points I found interesting...

Unemployment Worse Than It Seems

Faber claims the true unemployment rate is closer to 17% if you include discouraged workers. I have heard that before but I found it interesting how Faber supported that view. He suggested that, anyone that didn't believe his figure to look at food stamp usage (for those not familiar, this is free food handed out to struggling individuals.) Faber remarked that something like 30 million (I forget the exact number he mentioned) Americans are using food stamps (I'm actually shocked with that number.) Then he speculated that there are probably 200 million food-stamp-eligible Americans, which roughly approximates the working population. This ratio actually works out close to his 17% unemployment rate. This is kind of disturbing to me, not because it is around 17% now, but because the unemployment rate probably hasn't peaked yet. How bad are things going to be when it peaks? (On a side note, depending on how you look, the current unemployment situation is still not, supposedly, as bad as 1982 or 1974. Maybe someone that lived in those two periods can comment on how the present compares to that period.)

Market Behaviour

Another interesting comment he made had to do with market behaviour. He suggested that the market moves from fearing inflation to fearing deflation. The market was scared of deflation in late 2008 and early 2009; then it was scared of inflation from April; and he suggests it may start fearing deflation going forward. When the market fears deflation, US$ strengthens and bonds rally, while commodities and are sold off; and vice versa. This is an interesting thought and I'm curious to see if the market switches to a deflation mode.

Want To Meet A Harcore Inflationist?

In the grand scheme of things, Marc Faber believes we will get high inflation. He thinks government actions will lead to high inflation. Unfortunately, he never really touched on the topic of credit destruction (unlike the mainstream, AustEcon followers seem to consider total credit as the money supply rather than simply the money in circulation so this is an important issue to him.) The reason people like me lean towards deflation is because the total amount of debt that is being destroyed is far larger than the amount of money being printed. Perhaps Faber thinks the central banks will print far more than the credit that is dissapearing but I wish someone asked him about it.




FOOT NOTE:

(* Apart from putting the final nail to the gold standard, perhaps the main reason AustEcon supporters trash the FedRes so much is because they believe there is such a thing as a natural free-market interest rate and they think the FedRes sets the rate incorrectly. I'm not an economist but I'm not too sold on the idea. Even if they were right, the implications aren't as ominous as it seems. The FedRes may set the rate incorrectly but the free-market interest rate in the 1800's and early 1900's, in USA as well as other countries on the gold standard and/or without a central bank, resulted in huge booms and busts as well. I actually think the current meltdown is a crisis of capitalism and would have occurred even without a low central bank rate. For instance, credit has been growing since the early 80's and it seems uncorrelated to FedRes interest rate actions or money printing of any sort. Credit was expanding in the early 80's even when interest rates were well above 5%.)

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