Tuesday, November 22, 2011

Printing money solves no crises: Faber - Taipei Times

Marc Faber, publisher of the Gloom, Boom and Doom report, yesterday reiterated his criticism of money printing practices, which he believes will continue in the US, Europe and elsewhere, causing bubbles such as those seen in the Chinese real-estate market.
“A third wave of quantitative easing by the US Federal Reserve is just a matter of time,” said Faber, a contrarian investor who has been referred to as “Doctor Doom” for a number of years.
Printing money is the way global governments will evade debt crises, such as the one that is gripping Europe, Faber said in Taipei.
That would forestall the crisis rather than solve it, keeping prices elevated for assets like stocks, real estate in some areas and precious metal, he said.
Loose monetary policies, including low interest rates, intended as a short-term fix, can have unintended consequences later, Faber said.
While central banks can inject fresh funds into the markets, they cannot control where the funds flow, he said, adding that money printing has encouraged speculation on commodities whose prices have gone up faster than real demand in recent years.
“Some people will benefit from money printing that deflates the purchasing power of currency ... but the middle and lower--income classes are being hurt,” said Faber, an investment adviser focused on value investments, who owns Marc Faber Ltd.
Countries with resources are basking in the trend in light of their sharp increases in international reserves, which Faber said was symptomatic of monetary inflation and a shift in wealth.
The fast-growing economy of China has pushed up its inflationary pressures, with the bubble in the real-estate sector on the brink of bursting, Faber said.
“Don’t believe China’s consumer price index stands only at 5 percent,” he said. “The truth is somewhere between 12 percent and 15 percent ... The real-estate bubble is so evident that Chinese property shares are very weak as the volume of real-estate transactions goes down and prices fall.”
Faber said China would follow the practice of quantitative easing if it has to choose between printing money and a concrete recession.
The Chinese bubble will burst eventually, in three months or in three years; when it happens, it will have devastating consequences for the global economy, he said.
“Chinese invented paper. They know how to print money,” Faber said.
Still, the ongoing shifting balance of economic power from industrialized countries to emerging economies is building up geopolitical tensions, especially in the Middle East and Central Asia, he said.
All the West needs to do to contain China is seize control of oil supplies, but China and the countries dependent on oil imports would not allow that for the sake of self-preservation, Faber said.
He recommended risk diversification against the current backdrop, but took a dim view of government bond purchases as they would mean trust in the easy monetary policy.
Rather, he suggests owning physical gold, equities and Asian real estate that will prove a better defense against inflation.
Greece, Faber said, is bankrupt whether Europe likes to admit it or not, and the European Central Bank will print money to postpone a systematic failure.