Marc Faber spoke with Bloomberg News (audio) in Manila today to address the question of whether today's historic global rate cuts will help the financial markets, particularly global equities.
Bloomberg - "Faber says rate cuts will fail to stem equities rout":
"Investor Marc Faber said a series of coordinated interest-rate cuts by central banks including the Federal Reserve to ease the economic effects of the global financial crisis won't halt a worldwide slide in equities.
``Artificially low interest rates'' that encouraged consumers and banks to take on more debt were the main cause of the credit-market turmoil that caused the failure of Bear Stearns Cos. and Lehman Brothers Holdings Inc., according to Faber, who predicted the 1987 stock-market crash.
``The slashing of interest rates will not help very much,'' Faber, who manages $300 million, said in an interview in Manila. `They may cushion somewhat the decline but make matters worse.''"
In fact, not only will this coordinated easing of monetary policy not help, it is likely to make the economic problems worse. As Faber points out, the root of our current problems lie in the previous cycle of overly accomadative monetary policy (artificially cheap money).
Would you attempt to solve a crisis with more of what brought it on in the first place? Central bankers would, and did today.
"...The Fed cut its key rate to 1.5 percent, a level last seen in September 2004. Low interest rates on deposits have pushed consumers to speculate on higher yields in other assets including stocks, real estate and commodities, Faber said.
``Had central banks around the world kept interest rates that encourage saving we won't have these problems today,'' the investor said. ""
For an opposing view, see almost any cable news channel anytime tonight. I'm sure the usual panoply of government/Wall Street shills will be praising these moves to the sky.
1. "Global rate cuts have arrived" - Finance Trends Matter.
2. "Coordinated central bank action fails to relieve money markets" - Naked Capitalism.
3. "Timeline: Fed actions to boost liquidity" - Reuters.
4. "How's that bailout bill working out?" - Bear Mountain Bull.
5. "Faber believes market is oversold" - Stock Market Advantage.