Marc Faber on Gold, Silver, Deflation and the U.S. Economy

The Market Oracle ^ | Jul 18, 2011 | By: Aftab_Singh

[Errant]

Marc Faber was interviewed on the Financial Sense Newshour. It’s a long one, but it’s definitely worth a listen. As usual, we’ve included a summary below for our readers who don’t have the time to sit through the entire video.

[Errant]

I'm a big fan of Dr. Mark. When you see Faber and others like him solicited by government to assist in planning a way out of our economic problems, you'll know that things will begin to improve. I expect a leader like Sarah Palin to be smart enough to pull the best economic minds on the planet together to formulate a plan. Obama is too much of a narcissist and too beholding to his cronies.

Summary:

• In the deflationist scenario, you don’t want to be in US govt. bonds & cash. In that scenario, the fiscal deficit would deteriorate greatly. If the Dow went below 1000, we would be in a total economic collapse where tax revenues would fall off a cliff. So even in the deflationist scenario you don’t want to be in the long end of the government bond market.
• In the 50s and 60s, people were more free. Now, we have police states in the West, where restrictions are rather onerous. Also, back in the 50s & 60s, the Bretton Woods System restricted the potential for severe inflation.
• ‘What is money?’ is a big question. Generally speaking, it’s a medium of exchange, a store of value and a unit of account. Gold is a much better store of value than the dollar. As a unit of account, the dollar is poor. Has the US really been growing at 3% per annum?
• The standard of living for the average US household has gone down over the past 20 years. Relative to the rest of the World, the peak of US prosperity occurred in the 1950s. It’s very difficult to measure economic growth and prosperity.
• The Emerging Markets used to be way behind the US. Now, the infrastructure in the Emerging Markets is way better than in the US. The US have grossly underinvested in infrastructure.
• The US has survived on the continued expansion of borrowing to offset declining income in real terms. Now the power to borrow is gone.
• Europeans & Americans are generally complaining about onerous regulations.
• On the one hand you have money printing & expansionary fiscal policies. On the other, you have more and more regulation. The small businessman, who can’t employ an army of lawyers and accountants have no appetite to hire. They say that the more tax they pay, the more the government will harass them!
• In Asia, there exists the opposite scenario: There is relative economic freedom insofar as you don’t criticise the government. A great quality of the US is that you can pretty much say what you want.
• The likelihood of a hyperinflation has increased. If you go back to Jan 2011, would you have thought that the Middle East would blow up as it has? Would you have thought that the NATO countries would go to war against an idiot in Libya? He’s just one of many idiots, if you go after a country like Libya, you may as well go against 180 countries in the world!
• The Western press is focussed on how to ‘contain’ China. One way is to control oil in the middle east; for then they can switch on the tap, or close it. The Allies have gone to the Middle East to attempt to gain control of the Oil. But this costs a lot! They’re not in a position to finance the war unless they print money. So we’re likely to see higher inflation.
• Bernanke has some knowledge about economic contraction & expansion in a closed system. But he has no clue about the international system!
• The more the US will print money, the more the dollar will depreciate against gold, silver, platinum & palladium.
• Bernanke is a typical academic. He knows about everything in theory, but no clue about the real world.
• A bubble occurs after several years of price increases. At the tail end of the trend, you get an annual appreciation that almost goes vertically. This hasn’t happened in the gold market.
• Most people have sold their gold according to Marc Faber’s feedback from his subscribers at gloomboomdoom.com
• Marc Faber was at a popular resource conference recently. He asked how many people had more than 5% invested in gold and only about 5 in 400 raised their hands!
• If Marc Faber had to have one asset over the next 10 years, he would own gold (for maintenance of purchasing power) or equities (for profits).
• It’s important to diversify your assets geographically. Political changes can completely wipe you out if you keep it all in one country.
• It’s extremely difficult to get a bank account overseas if you’re an American. Officially there is a free foreign exchange market, but unofficially there are foreign exchange controls.
• Easy monetary policies create greed & bubbles. One of the symptoms is fraud & embezzlement. Fannie Mae & Freddie Mac were frauds.
• Money Printing in the US has produced bubbles elsewhere in the world.
• Do what the Jews do! Marc Faber’s jewish friends have lots of gold and silver. Marc Faber has around 20% in gold & silver & mining stocks.
• All this being said, we should note that a correction can occur!!!
• In the previous gold bubble, everyone watched gold all day and all night! We don’t have a heavy euphoria yet.
• America is a great place with great people. It’s only the Government that’s awful!

[rbg81]

So which is it going to be: deflation or inflation?

Also, why is holding cash bad during a deflationary cycle?

[PGR88]

I like economic analysis from anyone not connected to Wall Street brokers, Banks, Rating Agencies, Main Stream Media, Gov’ts, Central Banks or political pressure groups.

That doesn’t leave too many, actually....

[NamVet71MP]

And... So which is it?

Most people have sold their gold according to Marc Faber’s feedback
or
Do what the Jews do! Marc Faber’s jewish friends have lots of gold and silver.

[rbg81]

Maybe, but he’s all over the map re: deflation vs. inflation. Obviously, he likes gold and silver.

My $$ is on an inflationary period, followed by a deflationary one (after the economy collapses under the weight of Government debt).

[DaxtonBrown]

[So which is it going to be: deflation or inflation?]

It is both. Look up biflation.

GDP = M * V

Output reflects both monetary and velocity considerations. That is, if you only look at money supply, you get inflation. But velocity drops in a corrupt system - deflationary. In other words, you can have a mixed inflationary AND deflationary economy.

[Errant]

The danger of holding dollar related assets (cash, bonds, or any fiat currency) in a deflationary cycle is the likely hood that government will be forced to print money in their attempt to keep the governed happy as we're seeing already (QE1, QE2, QEx...). When this happens in ernest, fiat currency could become worthless.

Diversify, educate yourself (listen to the video), and most of all, secure essential insurance (water, food, shelter, defense, ...) to get you through the roughest times.

[Pylon]

[Errant]

Same here. I like to think that I'm not prejudice at all in my gathering of economic information but tend to give most credence to only a few, Faber being at the top of the list.

[screaminsunshine]

`Deflation in conduction with printing. Higher prices but not really.

[Errant]

Amen!

[Errant]

Higher prices but not really.

Higher prices in fiat currency but deflated prices in gold/silver. Also, prices become dislocated. Scarce essentials of course increase in demand while other items in excess, decline in value.

[Pylon]

[Solson]

Owning gold and silver STOCKS is NOT owning physical gold and silver. The ownership of physical gold and silver is the hedge against a poor dollar.

[farmguy]

And... So which is it? Most people have sold their gold according to Marc Faber’s feedback or Do what the Jews do! Marc Faber’s jewish friends have lots of gold and silver.

I believe what he said was most Americans that bought gold when it was cheap sold when it crossed $1000. He went on later to advise folks that there is a much bigger run up coming and that his Jewish friends are buying and holding for that run up.

Not agreeing or disagreeing, just trying to clarify what was said.

[hosepipe]

Fiat Currency/Stocks/Bonds vs. GOLD/silver.........

ONLY a moron could be confused with that choice..

[darth]

My own personal investment strategy:

1. Own a small business even if you have a full time job. Start very small and your mistakes will cost you less as you become educated in your field.

2. Invest in equipment, materials, training, and marketing where that investment will result in PROFIT.

3. Reinvest your profits to expand the company. You don’t need a bigger house or new car.

4. Unlike stocks and bonds you have complete control of your small business.

5. Be alert for sudden opportunities. For example, I have bought the equipment from three similar manufacturing plants that went belly up. I bought most of my equipment for about 5% of what it would cost new.

6. Keep your overhead low.

7. Your employees are your most valuable asset. Hire when you must but cull the deadwood ASAP.

8. Invest in your own education and training. I wasted tens of thousands trying to hire “experts” and taking on partners when all I had to do was buy a book or take a short course. Rely on yourself; you don’t need partners.

9. Find market niches where you will be the ONLY supplier. Why compete if you can avoid it?

I have been a full time entrepreneur in manufacturing for nine years now. I would not trade my freedom and low-stress life for any corporate job.

Hope this inspires a few of my fellow Freepers. Going entrepreneur is better than going Galt.

[Errant]

Going entrepreneur is better than going Galt.

How is that??? First, the John Galt character in Ayn Rand's novel was an entrepreneur...

[Errant]

In some cases, it might be better to have stocks, ETFs, gold certificates and etc. rather than physical (cash, gold bullion, silver). One such instance that comes to mind would be leaving the country in the future when things get even tighter. It's best to diversify to an extent if you are able to do so, IMO.I remember stories of the Jews who escaped from Europe with the rise of Hitler, converted their wealth into diamonds which were easier to conceal. Otherwise I agree if you have a good supply of essentials on hand.

[darth]

Errrrr, OK I never read the book.

I always thought that “going Galt” meant withdrawing from society and ceasing consumption.

My bad.

But what did you think about my message to my fellow Freepers?