Monday, May 31, 2010

Marc Faber - Mirror, Mirror on the Wall, When is the Next AIG to Fall?

This is a one hour presentation given by Marc Faber on the 22nd of May to an audience from the Mises Institute.

Most of what he covers in the first half is now old knowledge for the readers of Economic Edge. To his credit, he does point out that a bubble can occur under a gold standard… then blows it when he suggests that’s if there are large new deposits of gold that are mined from the earth. This is pure pandering to the crowd. He fails to point out that despite being “on the gold standard” all through the 1920’s that a roaring credit bubble was created through the creation of DEBT/ credit dollars and that Congress eventually was forced to revalue the currency many times. This is because a gold standard simply has never worked – never.

Other than their mistaken obsession with gold, the Mises believers are far more accurate in their economic theory than are the current pushers of debt. Overall this is a good presentation – it is good review of what’s happened, yet it does not offer solutions that can work. What is MOST important is WHO controls the money, not what backs it. (ht Dan)

The second half is spent discussing inflation to come, wars to come, and "doom." He mentions that stocks in a money printing period will outperform currencies and debt, yet he also mentions that you must swing from one asset class to another as the one and only certainty is that there will be a rollercoaster ride to come. My personal belief is that he is downplaying the shift in psychology that occurs during the third leg of a credit bust. During the third leg printing and bailouts is not as easy as during the first because people are now tired of the bankers and are rebelling. The future will be interesting regardless and I agree that you need to be nimble and well protected. In the end he will be right, of course, but we need to have people like Faber helping the world focus in on solutions that will work over time.