Marc Faber: Fed's QE Forever Is Ludicrous; No Country Has Become
Rich From Consumption
by Constantine Gardner
Business Intelligence Middle East
Dr. Marc Faber
the Swiss fund manager and Gloom Boom & Doom editor has been
reacting to the announcement Thursday of a third round of quantitative
easing by the Federal Reserve.
He sees the
Fed's action as ludicrous, leading to higher asset prices benefiting
the wealthy while the man on the street faces higher cost of living
and more job losses. He likens big government to a cancer taking
away people's freedom and says the US is facing a fiscal Grand Canyon
with never ending deficits.
Speaking to CNBC's
Worldwide Exchange today, Faber said: "This time it's not only
QE3, it is unlimited QE going on forever," with the Fed buying
mortgage- backed securities and continuing operation Twist.
the consequences of QE forever?
prices will go up and the money will flow to the Mayfair Economy,"
he said, defining the latter as an "economy of the rich people
whose assets prices go up and whose net worth increases" without
any trickle down benefit to the real economy.
What you have
is a small economy that is booming and the majority of the economy
is being damaged by QE, Faber explains.
If you have
very expansionary monetary policies, you actually encourage the
expansion of government, then the fiscal deficits, the transfer
payments etc..."We're not facing a fiscal cliff, we're facing
a Grand Canyon, with never ending deficits," he reckons.
As the U.S.
government heads into its fourth year of trillion-dollar-plus budget
deficits amid on-going Congressional wrangling about taxes, it is
likely to hit a threatened fiscal cliff in the form
of a US$16.4 trillion self-imposed borrowing limit later this year
or in early 2013, potentially forcing it into default unless Congress
agrees to raise the debt ceiling a contentious issue in this
presidential election year.
Reserve said Thursday it will expand its holdings of long-term securities
with open-ended purchases of US$40 billion of mortgage debt a month,
as it seeks to boost growth and reduce unemployment, and would likely
hold the federal funds rate near zero at least through mid-2015".
It will continue
its program to swap US$667 billion of short-term debt with longer-term
securities to lengthen the average maturity of its holdings, an
action dubbed Operation Twist. The central bank will also continue
reinvesting its portfolio of maturing housing debt into agency mortgage-
vs. demand boost
mandate of the Fed to boost asset prices and then to create wealth
is ludicrous, it doesnt work that way," stressed Faber,
adding that it may boost spending temporarily, but "the collapse
thereafter is even larger".
quantitative easing from the Fed, in whatever form, will only make
our next economic crash that much more serious," agrees Ron
Paul in a statement
issued last night.
If you want
to have an expansionary monetary policy, I would go as far as sending
each household a check for US$10 million free as a gift, and put
this on the balance sheet of the Treasury and the Fed, said the
Gloom Boom & Doom publisher.
It would boost
consumption temporarily, reckons Faber but in the longer term "no
country has become rich from consumption; it's capital spending
that leads to riches."
of its vaunted policy tools, the Fed now finds itself repeating
the same basic action over and over in an attempt to prime the economy
with more debt and credit," writes Ron Paul, adding that "this
latest decision to provide more quantitative easing will only prolong
our economic stagnation, corrupt market signals, and encourage even
more misallocation and malinvestment of resources."
In the austerity
versus growth pseudo debate, one is reminded that if money printing
was a panacea, Zimbabwe ought to have been an economic powerhouse
and if government spending was a miracle cure, then Greece ought
to have been the most successful eurozone economy.
the Fed's monetary policies over the last 15 years as mainly responsible
for the various asset bubbles (Nasdaq, real estate etc...) leading
to the subprime crisis in 2007. "The money printers and the
neo-Keynesians interventionists are responsible for the crisis,
reckons Faber, and people should know this."
and Fed governors appear not to understand that our current economic
malaise resulted directly because of the excessive credit the Fed
already pumped into the system," adds Ron Paul.
the rest of the article
Marc Faber [send him
mail] lives in Chiangmai, Thailand and is the author of Tomorrow's
2012 Business Intelligence Middle
Best of Marc Faber