Dr Doom Marc Faber spells out the end game at CLSA Forum
Marc Faber was in fine form at the CLSA Investor Forum, dispensing his trademark gloom and doom. The final keynote was a tour de force of the history of debt, asset bubbles and financial markets in the 20th and 21st centuries. "Unlike the '50s and '70s when there was relatively less overall debt, a financial market crash did not inflict great damage on the economy. Debt levels are significantly higher these days, and so a market crash can inflict serious damage on economies. We've gone through a period of huge asset inflation, in stocks, bonds, commodities, and real estate, and we essentially now have in the world, a huge asset bubble. So everything is grossly inflated."
In addition there has since 2007 been "colossal asset inflation" in high-end goods such as paintings. In thinking about what the next big bubble will be, Faber said: "The problem is I believe you and I are the bubble … the financial system is just too big, that is the problem. Maybe we can't see where the next bubble is because we are the bubble - that is something to consider."
Faber thought economists should distinguish between economic growth where credit grows at the same rate as the economy, which he believes is sound compared with a situation where credit grows faster than the economy. Credit used in capital formation is more beneficial to an economy than if used for consumption, as is the case in the US. "One day this whole credit bubble will be deflated very badly - you are going to experience a complete implosion of all asset prices and the credit system - but as to when -I don't know."
One advanced sign of the cracks in the system are already evident. A dollar of additional credit in the system created significant economic growth, but these days an additional dollar has very little impact. "That is a sign that we have reached the end of monetary policy." Another indication is when the US government has to issue treasuries to pay the interest on its maturing debt. "That will be the end game - then you are dealing with a collapse in the currency."
Xi Jinping appears to be making friends all over the world. At the end of August the mainland's relationship with Mexico was upgraded to an Integral Strategic Partnership, which is a deeper co-operation arrangement that China sets up with its most important economic and political partners. Now the benefits of this are being reaped. Nine containers filled with 52,000 litres of 100 per cent-agave tequila were shipped to China by five Mexican distilling companies.
This is the first time Mexico has been able to ship top quality tequila to the mainland as Chinese authorities, along with some other countries, had previously banned it because its methanol content exceeded the level permitted for spirits consumed in China. The restrictions were presumably on health grounds as high levels of methanol - wood alcohol - is of the type said to make you go blind, cause permanent neurological damage, in addition to leaving you with a nasty hangover.
But given the other horrors that occur in the mainland's food and drink industry this is probably a relatively minor problem.
Support School of St Jude
Peter Williams and his family are hosting a reception to raise awareness for a school based in Tanzania that fights poverty through education. The School of St Jude was founded in 2002 with the goal of educating children from the poorest families, starting with only three students. Today it has over 1,600 students across three campuses and is supported by sponsors from all over the world.
The entire community is benefiting from the school, and the effects are expected to ripple across Tanzania and beyond. Importantly the marketing for the school is primarily through independently organised events and word of mouth. Kim Saville, who is a co-founder, and Felix Mollel, a Tanzanian who works at St Jude, will speak about the school. There'll be a silent auction during the evening, and guests can make a voluntary donation or learn about sponsoring a child, teacher, classroom, school bus or other projects. The event is at 7pm on Monday, September 30 at Galerie Koo, 67 Wyndham St. Those wanting to attend should contact firstname.lastname@example.org.
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