Whenever Marc Faber appears in the financial media, in this case Bloomberg TV, one can expect the usual fire and brimstone sermon of how micromanagement of the global economy by central bankers will lead to disastrous results, something which we agree with wholeheartedly and as of two months ago, so did virtually every billionaire at Davos.
Recall that just at the end of January, the WSJ when reporting from Davos said that “The world’s central banks can’t save us anymore. That was the message from some of the world’s most prominent investors at the World Economic Forum in Davos, Switzerland, on Friday. Their mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long.”
Somehow we doubt these same billionaires are quite as irritated, or quite as negative on central bank intervention two months later when thanks to, drumroll, central bank intervention, the Dow Jones has staged the biggest quarterly rebound from its lows since 1933.
Anyway, back to Faber, who – sure enough – ponders the idiocy of the IMF’s counterfactual statement today, when Lagarde said the world economy would be worse off without negative interest rates:
… they will always say, if we hadn’t done this and hadn’t done that, it would be much worse. They have no proof for this assertion. In my view, it would have been better to let the crisis, already the first one in 2000, run its course and prevent the colossal credit bubble that was built up that then led to an even bigger crisis, and now they’re doing the same mistake.
He then goes on to slam NIRP and the upcoming helicopter money:
… the magicians at central banks, they always come out with a new trick and these negative interest rates that we have today, this is for the first time in recorded human history from the times of Babylon up to today that we have negative interest rates, and it’s not going to end well. That, I can tell you. But the sequence of how it will not end well, I’m not so sure. But they still have a lot of ammunition. What they can do is helicopter money. In other words, they can send you and Mr. Bloomberg and me and everybody, say a check for $10,000, and that is like throwing gasoline into a fire…. will it help the economy? That is the question. It won’t help in the long run. You cannot grow an economy by just throwing money at people.
On what policies he would prefer instead:
… the less policies, the better it would be. We all learned at school that the free market and the capitalistic system is the best allocator of resources, and now what we have is the worst allocation of resources because it’s the government that tells you how these resources are allocated and they continuously expand their interventions, and I can tell you, I started to work in 1970. In the 70’s and early 1980’s, central banks actually never came up in discussions. They have now become like the messiah, and everybody watches what the central banks do and in the end, in my view, they will have, from a long term perspective, no impact whatsoever. Now can they move markets short term? Yes, but maybe not in the direction they want to.
None of these are necessarily new as Faber’s position on these topics has been well known in advance. However, what surprised us was how clear Faber’s political outlook is.
This is what he said:
You can buy the Singapore stock market with a four percent dividend yield. Well, Singapore is a relatively sound economy. It’s diversified and it’s well run, unlike the U.S., unless, of course, the U.S. is run by Mr. Trump. Then the U.S. will improve.
HYDE: But Mr. Faber, I mean, we’re seeing from Donald Trump’s potential policies that he wants to slow international trade between the United States and other countries. Surely that’s going to be a block upon free markets.
FABER: Well, I agree that it is negative if you have restrictions on a free market. That, I agree entirely. But you have to equally see that the U.S. has essentially given in on a lot of things that benefit other countries. If you look at, say, the growth, 2000 to today, which countries have done relatively well? The emerging markets have done fantastically well. Their GDP has gone up substantially. The standards of living have gone up substantially. They have accumulated large reserves, and so forth. The U.S. and Europe and Japan, relatively speaking, have been declining, and that, the statistics are visible from industrial production in emerging economies. It’s doubled in the last 12 years. Global trade, you look at the share of emerging markets, it’s gone up. The developed world, the U.S., Europe, Japan, it’s gone down and so forth. So I think that maybe we have to find a way to have a more balanced approach to global trade. I’m not saying protectionism, but the more balanced approach that is fair to the developed world.
BARTON: Are you really a fan of Mr. Trump, Marc? Do you really believe…?
FABER: It is all relative. Given the alternatives, I would vote for Mr. Trump, because he may only destroy the U.S. economy, but Hillary Clinton will destroy the whole world. Look at her nation building in the Middle East, how successful that has been.
He is right.
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