An Oracle speaks - Dr. Doom!!
28 October 2008If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
From time to time, I check out Dr. Doom himself - Marc Faber’s Gloom Boom and Doom Report. His take on matters of things past is spot on:
A credit bubble has been growing for 25 years. We’ve seen, in particular over the past seven years, an unbelievable credit growth,which fuelled economic development. Then there were structural changes in the economy, for example the sinking saving ratios that have had an effect on consumption and growth rates.
More importantly, one of the contributing causes of the problem (as I mentioned in my fanciful history of the past few years)
The situation worsened in 2001 in the United States when the central bank lowered the interest rate from 6.5 per cent to an unheard of one per cent in 2003. This ultra-expansive monetary policy led to a credit growth that was five times higher than growth of the economy. A bubble growth and later the crash were the logical consequences.
Of course, the Fed didn’t lower the interest rates willy nilly. You remember the two precedent factors that played a large hand in this policy - 9/11 and the Tech bubble unraveling. I sense a pervasive mentality - a mentality of entitlement, that of keeping the good times rolling at all costs. This mentality is pervasive and it is a response of government and institutions to the people i.e. this mentality which for ages remained the elite’s inheritance has become the people’s right. There are no such rights to be had even if for a time governments dispense such myth. If one looks at the many government liabilities going forward, one can generalize that most of them are a hedge against uncertainty and death - the two things that one cannot legislate, fund or overcome. Yet. At its root, as always - there is an overarching religious crisis. Uncertainty (consequently, a reasonable fear) and death have always been bread and butter of religion, No?
Regardless, the costs of entitlements are heavy - there’s a certain logic in this recklessness because the ’powers that be’ reckon that no one can call them on it. In the past, people revolted against those who lorded it over them because ’the other’ was not them i.e. as long as kings and lords were separated from the people there was always a chasm across which one could point fingers. But in modern times, ’the other’ is us - you and me. Over the past few weeks, there was for a short time (about two or three days?) a separation between Wall Street and Main Street. As you might have observed, it quickly gave way - the markets bring willing and unwilling participants to the same table.
The US government will in future have new debts of at least $1,000 billion (SFr1,165 billion). That’s on top of the current state debt of$10,000 billion. And that doesn’t take into account state programmes to stimulate the economy. The government will have no other choice than to print money, which in the long term will lead to inflation.
As I said above, the ’powers that be’ reckon that no one can call them on this recklessness - debasing of money, inflating the economy by cranking out the printing press in full force and in the longer term inflation - can utopia be that far off?. That recklessness is instigated by us - we don’t want the good times to be that far off in the future. What we’re giving up is the future value of our productive work - game? Like I said, there is a religious problem at hand. Now, how does the Gordian knot get cut? Will a central banker come out and castigate us? Will the president give us a stern talking to? How about your financial advisors? Lawyers? Doctors? Professors? Ok, so whose left? Who will I listen to? Or we could wait for a Hero to change the subject…
I wonder if one doesn’t learn the ways of the world when a child, can only uncertainty and death teach us the same lessons as adults?
Ok, back to Supply Chain Management from now on…
Tags: Marc Faber - Dr. Doom, Fiscal policy, Long term inflation
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