Tuesday, September 11, 2012

Marc Faber on the global economy, bubbles, and inflation

Marc Faber offers some forecasts for the global economy in this recent Dubai hedge funds world conference video. 

Faber makes 2 important points at the outset of this talk.

First, he notes that at the start of his career (1970) investment banks were all private partnerships. Not a one was a publicly traded corporation, whereas today most large banks are listed corporations.

As a result, the risk profile at investment banks has completely changed from the days when partners at investment banks were personally liable for other people's mistakes. Today, bankers risk other people's money and face no real consequences for their mistakes. In fact, they are often bailed out with taxpayer funds when they go bust.

Secondly, Marc points out that the (neo-) Keynesians want to make interventions in the capitalist economy and "smooth out" the business cycle with fiscal and monetary measures. 

In Faber's view, these interventions have actually made fluctuations in the business cycle more violent and extreme. As he puts it, "the Keynesians always try to address long-term structural problems with short-term fixes...with an emphasis on creating bubbles to "help" the economy. Whereas bubbles usually hurt the majority of market participants." 

Check out the full presentation above for Faber's thoughts on how to navigate our global course of negative real interest rates, understated inflation, serial bubbles, and centrally planned markets. 

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1. Marc Faber: final crisis yet to come (video).

2. Nassim Taleb on Anti-fragility.