Faber: Next Stimulus Will Be Worse
Wednesday, July 15, 2009 3:46 PM
By: Julie Crawshaw Article Font Size
Some economists think that another bubble is what’s needed to get the economy moving again.
Gloom, Boom and Doom publisher Marc Faber said this is ridiculous, and that the Federal Reserve — which he holds responsible for creating the housing bubble — wants to do it all over again.
The central bank should not encourage excessive credit growth, Faber tells Moneynews.com's Dan Mangru in an exclusive interview.
Between 2000 and 2007 the total U.S. credit market debt increased at five times the rate of nominal gross domestic product.
Unfortunately, Faber said, the next bubble is already here. This time it’s government spending and fiscal deficits that Faber thinks will double the government’s debt during the next six years or less.
“The U.S. government is largely deranged,” he said. “The private sector is the dynamic one, and that’s why I object tremendously against building up fiscal deficits because (they) shift economic activity into unproductive government instead of leaving it in the private sector.”
Another stimulus package would only make matters worse.
“In the Depression, they had one stimulus after another and it didn’t help,” Faber said. “What helped was World War II.”
The problem with bubbles, Faber said, is that they only temporarily stimulate the economy.
“The whole economic expansion driven by a bubble in America has been a total disaster and has shifted wealth from the ordinary people who work … to the Wall Street elite,” he said.
Nor does the government score any higher when it comes to managing inflation, which Faber thinks will reach Zimbabwe-like levels in the U.S. courtesy of the Fed’s policy of keeping interest rates too low.
“The Fed, in my opinion, has zilch idea about monetary policy,” Faber said.
“What they focus upon is basically core inflation, which does not include energy and food prices and the way the Fed measures inflation is highly questionable in the first place because when you measure inflation it’s a basket of goods and services.”
When the economy recovers, interest rates should go up because of inflationary pressures, something Faber expects the Fed won’t let happen because it could cause interest payments on the government’s debt to double. Those payments today are slightly below $500 billion annually.
If the global economy collapses in a deflationary spiral, those government deficits actually expand, leading to more central bank-driven monetization, Faber said. And keeping interest rates artificially low will lead to more and more inflation.
Add to all of this the expectation that health care costs will soar and jobless rates will probably continue to be high, and the economic picture becomes even gloomier.
“I think we’ve just gone … to the beginning of the realization that the economy may be bottoming out but not much recovery is forthcoming,” Faber said.
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http://www.thedailycrux.com/content/2349/Economy/eml
http://moneynews.newsmax.com/streettalk/federal_reserve/2009/07/15/235992.html
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