I own equities, and I should thank Mr. Bernanke. The Fed has been flooding the system with money. The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert. Instead, it creates dangerous excesses in countries and asset classes. Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market—things like stocks, bonds, art, wine, jewelry, and luxury real estate. The art-auction houses are seeing record sales. Property prices in the Hamptons rose 35% last year. Sandy Weill [the former head of Citigroup] bought a Manhattan condominium in 2007 for $43.7 million. He sold it last year for $88 million.
Money-printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins. Although I have been a beneficiary of this policy, I can’t approve as an economist and social observer. – in Barron’s
Nathan McDonald of Sprott Money News interviews Marc Faber in the video report above. He begins asking Mark his view of the speech from Ben Bernanke and the Fed’s FOMC meeting minutes for June which have just been released,
Faber: in China without Huge Credit Expansion there would probably be no Growth at all
“The Chinese economy is growing at something like 4 per cent per annum, and without huge credit expansion there would probably be no growth at all.” – in South China Morning Post
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Faber : The FED is Causing the Crisis with its very Expansionary Monetary Policy
Have the quantitative easing measures / stimulus by various central banks done an irreversible damage to the long-term prospects of global economy, markets (equity and commodity)? Why / why not?
Faber : There are people believe that Ben Bernanke and other central bankers have saved the world’s financial system. I am not saying that they are wrong but I am suggesting that the crisis occurred in the first place because of the expansionary monetary policy – principally by the US Federal Reserve since the 1990’s.
In other words, each time there was a crisis – be it S&L (savings and loans) crisis, LTCM Hedge Fund crisis, Mexican peso crisis which is also known as the Tequila crisis – ahead of Y2K, monetary policies were eased and liquidity injection occurred. And then we had the Nasdaq collapse in the year 2000.
The US Federal Reserve then again embarked on extremely expansionary monetary policy, which created a gigantic credit bubble and home prices surged.
When this came to an end, that’s when the crisis actually happened. Had the US Fed not pursued very expansionary monetary policies and paid attention to excessive credit growth, there would have been no crisis.
The Policy Decisions in Japan are quite Dangerous
In the case of Japan, we have had essentially very little growth and some deflationary pressures until last October after which the Bank of Japan (BoJ) embarked on monetary easing policies. Since then the Yen has weakened considerably and the stock market has risen sharply.
I think that the policy decisions in Japan are quite dangerous because it essentially gives a green signal to other countries regarding monetary easing. If there is have low economic growth and if the share market is not performing well, then most likely the currency will go down. This will help economy temporarily and lift asset prices.
FABER : The Euro-zone is not going to Grow
…..read more HERE
Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.