Will They Ever Grasp the Simple Truths?

By: Michael J Panzner

It’s funny how little those in charge have learned from the nightmare of the past two years.

All the evidence suggests that the various machinations of the Fed, the misjudgments of the Treasury, the manipulations of the moneyed interests, and the malfeasance of elected officials who supposedly serve our interests has helped bring about the worst financial crisis since the Great Depression.

And yet, what do we have now? More of the same. More of the same kind of disastrous thinking and misguided policy-making that has helped transform the U.S. from an unrivaled economic powerhouse into a nation that is slowly being consumed from within by wreckless profligacy and an addict’s dependence on borrowed money.

Sadly — and to our country’s ultimate detriment, I might add — I’m not sure whether any of these individuals will ever grasp the simple truths highlighted in the following report from Business Intelligence Middle East, “Money Printing, Debt Growth and Deficits Don’t Create Prosperity, Says Marc Faber“:

Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said the US Federal Reserve managed, through stimulus, to do something that had never before been done – create a worldwide bubble in just about everything -stocks, bonds , housing and art.

The only thing that didn’t go up was the dollar, according to Faber.

Speaking to the 10th Annual Agora Financial Investment Symposium in Vancouver this week, Faber said: “You cannot create prosperity through money printing and debt growth.”

Faber preached an idea that became the theme of the event: Government fiscal and monetary intervention, “can postpone, but not prevent crisis.

“I believe next year’s economy will face even larger deficits. Their deficit is attempting to stimulate credit growth. Unless real credit growth returns, they will have to put more and more money into the system to maintain the status quo. All polices target consumption. That is a mistake,” Faber said.

So what’s this mean for the market? “The S&P 500 will not recover to 2007 highs. At the peak, 44% of the S&P was the financial sector. That is gone… not coming back.”

“In the period, 2001 -2007, the Fed managed to do something that had never before been done – create a worldwide bubble in just about everything. Stocks, bonds, art, oil, housing – you name it; it went up. The only thing that didn’t go up was the dollar,” Faber said.

All this was achieved through stimulus, Faber said.

After a half a century of stimulus – with credit, inflation and the money supply growing faster and faster – the Fed put the pedal to the metal following the nano-recession of 2001. It dropped interest rates to just 1% – well below the rate of consumer price inflation – and kept them there until an expansion had been going on for three years.

Instead of increasing real output in the US, it lured Americans to spend and speculate…and drove Chinese entrepreneurs to put up new factories in order to give them something to buy. In America, debt grew 5 times faster than GDP; for each dollar of extra income, Americans added US$5.50 to their debt. In China, manufacturing capacity grew faster than ever.

“Bubbles had been localized in the past,” Faber explained. “A bubble in one area drew investment from another area. In one market, prices soared. In another they slumped. Overall, things didn’t change much.”

But a worldwide bubble in everything is something new. And it caused something else that is new – a worldwide crash. We have been ducking explosions and stepping over the debris for the last two years.

http://www.financialarmageddon.com/