Faber Says Bernanke Policy Will `Destroy’ U.S. Dollar

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UPDATE: March 6, 2008  9:43am

Yeah, I can see and hear this on the Dell in the office, but not on the iMac at home . .  .


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  1. rickrude commented on Mar 6

    I like Faber, speaks the truth.

  2. Eric Davis commented on Mar 6

    What happened to the big chart porn clock thing!!! it was very cool……….??

  3. mitch commented on Mar 6

    Time to pack the bags and move to brazil, in time for carnival.

    OT, the money market auction rate freeze is large, and tons of corp cash is frozen. Has anyone analyzed who is affected regarding stock buybacks or real cash flow needs. That could be another string in our broken puppet.

  4. JustinTheSkeptic commented on Mar 6

    He’s way too bearish…this is “the greatest story never told!” NOT.

  5. American ZIRP commented on Mar 6

    Here’s is a technical q for Barry or anyone else who uses a newer Mac computer:

    Can you play those Bloomberg videos on your Mac? I can’t ever get any audio (something about the asf format). I have to switch over to the bootcamp windows partition to play them.

    Just curious.

  6. Carmen commented on Mar 6

    American ZIRP – I can’t hear the sound on the Bloomberg videos and I have macs. Shame on Bloomberg. They have to catch up with the times.

    The most reliable videos on a mac are from Fox Bus. Net which is fine by me. There’s a lot of funny stuff there.

  7. mhm commented on Mar 6

    I have to agree with him. One large bank needs to fail and a niche derivative market is yet to implode. They will come together.

    On the other hand, sugar… Maybe that is an US play only? Because there is an over-supply of sugar right now everywhere else. Would somebody enlighten me, please?

  8. João Carlos commented on Mar 6

    Mitch,

    sorry, but carnaval was at the start of february this year.

    but maybe you can get the carnaval of 2009.

    better you hurry. dolar is falling here at Brazil a lot.

    if Faber is right, you will don’t have enough money here if you bring dolars.

  9. E commented on Mar 6

    Yet another misguided opinion. That whole discussion missed the point – Bernanke isn’t trying to juice growth, he’s trying to save the banking system from total breakdown. The effects of monetary policy on the currency and macro economy are secondary concerns for the Fed right now. It is ALL about keeping the banks solvent, and in turn keeping the economy out of a deflationary debacle.

  10. Tony Shifflett commented on Mar 6

    Yep. No trips to Europe for me this year. I went for three weeks back in ’03, and now one week would cost about the same.

  11. larster commented on Mar 6

    Faber makes a good point about us favoring consumption over capital investment. Our corporation leaders are looking only at short term profits to juice their options and bonuses. Noone is looking at the longer term of providing plant, capital to produce more goods. this folly will be exposed over time.

  12. Ross commented on Mar 6

    Damn, Faber is on to me. Don’t believe him about sugar. He’s WRONG. Sugar is a bad investment. So is palladium and cotton. STAY AWAY!

    Actually you can buy sugar and cotton ETF’s on the LSE. Palladium can be bought like gold. It is a pretty metal. I took some of my single ounce Pamp Suisse bars to a jeweler last November and had them fitted as necklaces for the lovely women in my life. Unusual Christmas presents. They were a big hit. Everyone had heard of platinum but palladium ,the other white metal, was unknown. My book.

    Faber is a savy investor. I followed his lead back in the 70’s when he was beating up on Arthur Burns and Herb Stein, the father of Steinery.

  13. JustinTheSkeptic commented on Mar 6

    mhm, you must not be listening to CNBC, they’re certain that we have tested the January lows and we are heading up! They fail to realize that the only reason we stopped at these levels is because of the Bernanke PUT! Once the market realizes that the only thing Bernanke did was put his thumb in the dike, we will go much lower! These Gurus always like to point out valuations, and historical references, that mean diddly-squat. My only question is how can the market participants keep on believing their bull-shit? Are American Investors that stupid? Has the media, and marketing finally taken over the minds of our last free-minded thinkers?

  14. wally commented on Mar 6

    Protecting the dollar is not the Fed’s job.

  15. jim bacon commented on Mar 6

    “My only question is how can the market participants keep on believing their bull-shit? Are American Investors that stupid? Has the media, and marketing finally taken over the minds of our last free-minded thinkers?”

    You will never go broke underestimating the stupidity of the American people. After all they elected bush, oops that was the Supreme
    Court wasn’t it.

  16. Max commented on Mar 6

    The Supreme Court did not decide the election; The Supreme Court decided not to decide and threw the mess Florida made back to Florida to sort out. Quite properly done in my opinion.

    Too bad about the Bush derangement syndrome, jim.

  17. DonKei commented on Mar 6

    Here’s my take on the dollar, sorry it is so long.

    The simple fact is that the dollar’s decline, long predicted, has finally arrived. International currency markets will impose the discipline of prudent monetary and fiscal policy, even when we are unwilling to do so ourselves. Our profligate consumption borrowing, both in the private and public fisc, is coming home to roost. No economic system ever got rich borrowing money to buy play-stations and other consumer goods. It has been a long period of accumulating long-term debt to pay for short-term pleasures, and it appears about over.

    Ben Bernanke is said to be an expert on the Great Depression. The contraction of the money supply during that era has convinced him that the thing to do in the face of a credit crunch is print money, ergo, his derisive moniker as “Helicopter Ben”–he’d drop dollars from a helicopter to keep the money supply from contracting.

    Unfortunately, the analogy between now and the era of what Milton Friedman called the Great Contraction is not sound. During that period, the United States and all of its trading partners used metallic currency–either gold (mostly) or silver (a few). All that was required to see a contraction in the money supply was to see gold flutter out of the treasury, to be hoarded, or in payment of foreign debts. A reduced gold supply pushed the price of the currency up, which of course, yielded a reduction of prices for things bought w/ the currency, i.e., deflation.

    Deflation, like its counterpart, inflation, has many positive (or if preferred, negative) feedback loops. If prices are going down, that depresses demand today as people figure they can wait to see how low prices will go, which feeds back into the price mechanism, driving prices down further, etc. Deflating prices, at least temporarily, artificially deflate demand. Inflation, i.e., a devaluing currency, works the same, but in reverse, artificially inflating demand until such time prices have adjusted to reflect the true value of the currency relative to output. In either case, the currency market is distorting the true economic picture.

    Enter fiat currency, which is a piece of paper that is valuable because some government or economic entity says it is. It has virtually no intrinsic value (you could use it for wallpaper, perhaps?), and its marginal cost of production is very nearly zero. Thus supplies of fiat currency are not limited by geology, technology, etc., in the manner that the supplies of hard currency once were. The bias for central banks issuing fiat currency is always to err on the side of supplying a bit too much, instead of too little, because the feedback loops for rising prices (inflation) are viewed as less onerous than those for falling prices.

    The problem with a fiat currency is determining how much is just a bit more than enough. Since fiat currency represents the output of goods and services created by the economic system that printed it, a good place to start looking in evaluating whether too little or too much is issued would be its price in foreign currency markets, because other economic systems dispassionately evaluate its worth relative to the output it represents. If a fiat currency is losing value virtually across the board internationally, this is a good signal that there is too much of it being created. Another place to look is to return to the future and look at the prices, in the fiat currency, of internationally-traded commodities, like oil, gold, etc., as in the days of metallic currencies. Again if these prices are increasing, it is another sign of too much currency.

    Whither the fed, and today’s situation? The dollar is crashing, and commodities are screaming up. The fed must act quickly to decrease the supply of dollars, either via interest rate increases, or its reserve ratios, or whatever method it chooses, including identifying (hopefully for correction) some of the fiscal excesses of the past few months and years (e.g., Iraq, ethanold subsidies, implicit subsidies to Fannie and Freddie, etc.) I know that is counter-inuitive to what Bernanke is doing, but he seems to fear a deflationary spiral like the Great Contraction. If the US entered such a situation by dint of squeezing the money supply to bring down commodity prices and push up its foreign currency value, it could easily reverse course by just printing more money. It doesn’t have the necessity of finding new gold deposits or new technologies of extraction as was faced by the fed in the 1930’s. There is no real danger, in a fiat currency economy, of entering a demand-destroying deflationary spiral.

    People will say, “but look at Japan in the ’90’s”. Yes, but Japan was and is a special case. It had enjoyed an inflationary spiral for many years as it strove to keep its currency from appreciating in foreign exchange markets in order to juice demand in its export markets. It paid the piper w/ the ’90’s deflation, as it could no longer buy enough Yen to artificially keep its forex price low. The impact was especially hard because at the same time, Japan’s population stagnated and began declining. What looked like a deflationary spiral and a contracting economy was at least partially an aging native demographic with hardly any immigration allowed. If the economy contracts less than does the population, then on a per capita basis, incomes are still growing, which has mostly been Japan’s case these last few years.

    Thus Bernanke needs now to raise interest rates by at least about 200 basis points, and see what that does to the dollar and to commodity markets. If they settle down a bit, then leave them there for awhile to see what happens. Printing dollars is easy if need be. Finding and destroying them when too many are printed is somewhat more difficult and certainly more painful.

  18. mhm commented on Mar 6

    For the video problem on Macs, could one of you try VLC? Like most open source projects it has some rough edges but it may solve your problem.

    http://www.videolan.org/

    It is a lot more than just a player, so ignore the thousand options you don’t need to know.

  19. samax commented on Mar 6

    E is right and Faber is way off the plot.

    Ben is not trying to generate GDP growth or juice the equity market. He’s trying to maintain liquidity so the entire system doesn’t fall apart.

    Do they just put anyone with an opinion on TV? I suppose his accent makes him sound credible.

    As for the dollar….it needs to fall further. And stay there. That or we could just continue to sell foreigner’s all our hard assets.

    Samax

  20. SPECTRE of Deflation commented on Mar 6

    Faber fails to see the vicious cycle we now find ourselves in. This snippet explains everything very plainly. Welcome to the new reality:

    From TC Palm. “Thomasville Furniture of Jensen Beach is the latest casualty of the Treasure Coast’s slumping housing market.”

    “Kathy Devereux, VP of marketing, said ‘challenges’ in home sales impacted furniture sales at the store and the company has shuttered the upscale furniture retailer’s only Treasure Coast location.”

    “This isn’t the first major furniture retailer that has departed from the Treasure Coast. Palm Beach County-based Skeffington’s Furniture closed its Stuart location. In April, Modernage Furniture mailed letters to households along the Treasure Coast stating that, after 67 years, the Stuart and Vero Beach locations were closing.”

    “The Springmaid-Wamsutta store at The Outlets at Vero Beach also shut its doors last month.”

    “Brad Hunter, director of Metrostudy’s South Florida division, which follows housing trends on the Treasure Coast and in South Florida, called the trend alarming.”

    “‘The bad part of this is that it puts people out of work, which further depresses the market,’ Hunter said. ‘In a way, it’s a vicious cycle. When people lose jobs, that lessens the number of people that can afford homes, which further reduces home prices, which then reduces the demand for furniture and other retail services.’”

  21. Ross commented on Mar 6

    Excellent points, DonKei. May I add another? FDR’s confiscation of private gold holdings was an attempt to increase the money supply. After the confiscation I believe the price was increased by Government mandate to $35/oz, thus creating more nominal dollars. It didn’t work as intended because the feedback loop of bank lending was busted and stayed busted til WWII.

    My point is that whether one uses a commodity financial system, ie Gold or a fiat paper system, either will work if there is DISCIPLINE.

    Volker was despised and derided by the clamor of the Boeotians in 1982. I personally do not expect that kind of political will until well into 2010-2015.

  22. George commented on Mar 6

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aYoVDEWBwowo&refer=home

    March 5 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke will “destroy the U.S. dollar” by cutting interest rates, investor Marc Faber said.

    Bernanke’s reduction in the target rate for overnight loans between banks to 3 percent has spurred a rout in U.S. stocks and gains in oil and gold prices, said Faber, the Gloom, Boom & Doom report publisher who told investors to buy gold at the start of its six-year rally.

    The U.S. is now in a “de-leveraging” phase where banks make fewer loans, stunting economic growth, Faber
    said. He estimated that a U.S. recession began two or three months ago.

    “In the U.S., they pursue essentially economic policies that target consumption, which in my opinion is misguided,” Faber said in an interview with Bloomberg Television from Chicago. “They should pursue economic policies that stimulate capital investment and capital formation.”

    The Standard & Poor’s 500 Index is down 9.7 percent since Sept. 18, when the Fed began cutting the fed funds target to 3 percent from 5.25 percent. The dollar has lost 9.2 percent of its value versus the euro, crude oil futures gained more than 29 percent and gold added 34 percent during that time.

    Further interest-rate cuts may spur inflation and reduce the value of 10- and 30-year Treasuries, Faber said, calling the bonds “a disaster waiting to happen.” Ten-year notes fell to a four-year low of 3.44 on Jan. 22.

    Faber said sugar is inexpensive relative to other commodities and said stocks in emerging markets are more vulnerable than U.S. equities because speculation has created larger asset bubbles. He predicted shares in India and China could lose 30 to 40 percent of their value as markets decline worldwide.

    Faber’s Hong Kong-based Marc Faber Ltd. manages $300 million. Faber told investors to bail out of U.S. stocks a week before 1987’s so-called Black Monday crash, according to his Web site.

    Faber correctly predicted in May 2005 that stocks would make little headway that year. The S&P 500 gained 3 percent. He also told investors to buy gold in 2001, before it more than doubled.

  23. Fred commented on Mar 6

    Faber is a blow hard. It just isn’t that simplistic and Bernanke alone is not the solution, nor the problem. We have a board of governors that decides what action to take on interest rates and if any finger pointing merits discussion, it is at the Fed as an entity. Now, isn’t the real issue here that currencies really don’t cause economic ebbs and flows, versus reflect what occurs in the global economy? I think the real story here is that a countries economic asset is it’s ability to consume, produce and balance the two profitably. The US is the largest owner of consumption in the world economy and that is changing but to think for a second that the US can directly impact itself from inflationary sources outside of its political boundaries is a long shot. What we can do is preserve our ability to consume until global parities resume a more stable nature. In the end, its net growth that matters. If we slow down we run the risk of entering a period of real negative growth. I’d rather see the GDP stay positive than the currency retain strength.

  24. TempusFugit commented on Mar 6

    He actually sounds bullish on corporate debt.

  25. Ross commented on Mar 6

    Fred,
    Pass the bong. Seems you’re lit up and a little peckish today.

    Like the old ads “go get tomorrow, today.” I think we’ve all done that already. Time to PAY UP.

  26. Fred commented on Mar 6

    Ross – Perhaps, but financing tomorrow is nothing new and part of the reason why the USD will turn around, right? In the end, debt is not grounded in a vacuum (another discussion, right), but based on growth and ability to service interest and repay principal. Corporate earnings are the bedrock. The US is going through the painful reversion to resuming export strength. Yes, we’ve gotten phat (sic.) and lazy but we still enjoy an amazing standard of living. Point is, anyone who has lived through a real economic crisis knows that this is just a blip.

  27. Dave commented on Mar 6

    A bear quoting a bear. Maybe for added excitement you can have a bear quoting another bear quoting another bear

  28. michael schumacher commented on Mar 6

    paleeze Fred….

    “if we slow down” earth to Fred…..it;s slowed down to a crawl

    “anyone who has lived through a real economic crisis knows that this is just a blip”

    So I guess you are almost a hundred years old? Because that is the ONLY crisis that comes close to comparing to what is currently being played out in slow motion thanks to the denial that you are now espousing.

    I see the ostrich mentality is still alive and well.

    Ciao
    MS

  29. Whammer commented on Mar 6

    Oh, max?

    By the way, the Florida Supreme Court ordered a statewide recount in the Bush v. Gore case. The U.S. Supreme Court issued an injunction that put a stop to the recount. Three days later they said that there was no way for Florida to implement a recount in time to meet the safe harbor deadline. Too bad the recount had been stopped, you know, that was a terribly inconvenient thing.

    They said the recount would violate the equal protection provisions of the 14th amendment. They also said that the decision was “limited to the present circumstances, for the problem of equal protection in election processes generally presents many complexities.”

    If that fits your definition of “letting Florida decide”, then I’m not quite sure what language you speak.

    Sorry Barry, but when I see this right-wing revisionism I can’t help myself……..

  30. Fred commented on Mar 6

    Michael –

    I am not referring to the depression but to any of the crises over the past 20 years – Russia, Brazil, Argentina, Mexico, Asia, etc. A real crisis is when you wake up one day and your currency is worth 40% less, inflation is 90% and there isn’t any wonder bread at the 7/11. While I appreciate your sarcasm, you have to admit that of the things we cling to here, exaggeration leads the list. Oh no, it’s all falling apart. Help help!

  31. Crim Jamer commented on Mar 6

    Well, a crisis for me is when I tell everyone to buy JC Penny and then it drops 5 bucks, or Thornburg Mortgage…sorry about those two calls…and all the others.

  32. Ritchie commented on Mar 6

    Max: “Too bad about the Bush derangement syndrome, jim.”

    Bush Derangement syndrome has, essentially, no consequences, since its advocates are largely powerless.

    Bush Idolatry, on the other hand, enables him to run his latest bidnez venture, the United States, into the ground.

  33. michael schumacher commented on Mar 6

    No…..the exaggeration was that we will “decouple” or “contain” this mess…while still growing at any cost. Well the GDP numbers “say” we are still growing…..What is the overall cost of that growth? Destroying capital faster than we can create it.

    This IS different than the last time but by no means is it a good difference.

    I’d say that forced selling because of margin calls is but the tip of the iceberg at this point. Carlyle missing it’s margin call means that the top 1% can no longer deny or ignore reality.

    It has FINALLY hit a place where it might matter…….

    Ciao
    MS

  34. Paul in NYC commented on Mar 6

    Thanks god there are intelligent people like Whammer to set the record straight. Might I add the equal protection clause was violated itself by the state of Florida in:

    1. Giving laptops to certain counties and not all (helping to expedite voter roll searches and IDs on election day)
    2. The disparity in county ballot designs (Palm Beach being the infamously worst one.)
    3. The method of voting/machine itself.

    Did the USSC concern itself with any of those inequalities?

    Concerning the dollar- you have to love that many stores here in Manhattan now accept Euros.

  35. Ritchie commented on Mar 6

    Barry: “Yeah, I can see and hear this on the Dell in the office, but not on the iMac at home . . ”

    I watched this at home on my Mac G4, OSX 10.3.9, on Firefox.

  36. DonKei commented on Mar 6

    Ross,

    I’m thinking you got your range for political will to impose some sort of currency discipline about right–my guess is 2012–in time to elect a new president after four years of malaise, no matter who gets saddled for the ride this time. It’s hard for me to understand why anyone would want the job.

    And yes, FDR’s attempt to juice the money supply by gold confiscation failed. But it was until 1971, when Nixon abandoned Bretton Woods, that gold prices were finally free to fluctuate (by then, as Farber points, by increasing over 2500% by the end of the decade). Nixon’s abandonment of Bretton Woods marked the first time in world history that fiat currency predominated. What followed was a lovely decade, no?

  37. Fred commented on Mar 6

    Michael –

    Saying the downside “IS” different than the ‘last’ time, is kind of like the perma-bulls who said this last time “was” different….right? Barring Armaggedon, things revert to the mean. The world will adjust to better managed credit and less leverage overall. The world you are talking about is the one where suits in NYC and London buy things with 10x leverage and really don’t have to work for yield. Folks have to get used to having to work for their returns going forward – yes, alternatives will be one of the few places to have alpha….

  38. Tom commented on Mar 6

    We’ve robbed Peter (savings and investment) to pay Paul (debt and consumption) for far too long and now are going to pay the price. Pay now or calamity in the future.

  39. Ross commented on Mar 6

    DonKei,
    I think you are probably correct about 2012. What we haven’t seen yet is wage inflation, the cost push which we should get over the next few years. A hoarding mentality is still not here.

    Nixon did take us ‘formally’ off the gold standard but by 71, it was a farce anyway.

    You could buy gold in the 60’s in foreign countries. If I remember correctly, it traded between $60 to $80 dollars an ounce in Europe. I actually bought some dental gold under the table from a friend. Dentists and jewelers were some of the few who could legally own it back then.

    I remember the 70’s all too well. Not a fun time. We muddled through then and I just hope we get through this period without too much anarchy. If we don’t, we’ll have to bring the Guard back from Iraq to patrol our cities.

  40. michael schumacher commented on Mar 6

    Fred-

    It is different for reasons that you are well aware of. Hiding out under a tranche of rhetoric about the permabulls (of which you are one) is just a bit too much.

    2 things make it different than any other time:

    leverage
    artificially low interest rates

    because of those two things the recovery that is preached at each opp. will not occur as in previous recoveries simply because the mechanisms to actually affect high interst rates have already been used and abused.

    I KNOW you can see that…….trouble is that you do not want to.

    Ciao
    MS

  41. Chester White commented on Mar 6

    Coin collectors have always been able to own gold. Coins in crappy non-collectible condition sold at the bullion price. My dad had a number of them, bought legally and openly from dealers.

  42. Fred commented on Mar 6

    Michael –

    Never said I was a bull, just a realist. Leverage is not unique to the past seven years – structured finance certainly exceeded the envelope – but the concept of leverage has been and will continue to be a core feature of free market capitalism. If not, then we should all just pack up and relo to Caracas (fringe benefits are great) or perhaps some Russian mafia family office might be hiring. Interest rates: are what they are. To conclude as you do that they should be something else is simply wrong. It’s not the first time the yield curve has inverted, and it won’t be the last. If thats what you mean by artificial, then I concur. I don’t know what a recovery will look like but my sense is cash is king will take on an entirely new meaning. For the record, until Manhattan condos tank, I don’t think the real estate correction can proceed. It’s all about yields in my opinion. Nice volley going here. Have a nice day.

  43. Pat G. commented on Mar 6

    “Yeah, I can see and hear this on the Dell in the office, but not on the iMac at home . . .”

    Yeah, same here.

  44. Bill commented on Mar 7

    We (the USA) are drowning in debt, our currency is in the process of being rendered nearly valueless by the federal reserve and we no longer have the industrial capability to even manufacture the components and hardware to build our own military weapons. The USA is in the process of being pushed to the level of a second world country, the question is WHO is doing this. WELL, the answer is WE are. The greedy, parasitic leaches that operate the stock exchanges and the bourses where commodities are traded and that cater to the same ilk of investment operations that have only one goal. To drain every last drop of value from every working peasant in the country. We are on the cusp of a situation that is wholly new to the USA ,total bankruptcy of the middle class and below. It will be interesting to see if the peasants rise up and take the country back as has happened in the past both here and in France. I believe a tea party and some guillotine work are in order, it remains to be seen if the common citizen is up to the task at hand!

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