Fed “consistently and repeatedly messes up everything,” says Faber

By Prieur du Plessis, on January 19th, 2011 posted in: Investment, Markets, Money

Chris Martenson, is an economic researcher and futurist, and creator of the widely-viewed video seminar, The Crash Course, has just conducted a wide-ranging interview with famed investor Marc Faber, author of the Gloom Boom & Doom Report, as reported by Business Insider – Clusterstock.

“If there’s one institution in the US that consistently and repeatedly messes up everything, the Federal Reserve is that institution,” said Faber.

Click here to listen to the interview. (The transcript is here.)

In this podcast Marc explains his views on why:

Government intervention into the free markets has been increasing since the early 1980s (S&Ls, Mexico, LTCM, etc) and is the root cause of our issues, as each intervention brings the system further off track.
The principal vehicle for this intervention, the Fed, has a near-perfect track record of creating unsustainable asset bubbles (to which it is largely blind) when it intervenes.
Since its founding, the Fed has been dedicated to expansionary monetary policy. When looking at history, there’s an argument to be made that per capita price management in the US was better under the gold standard we had before the Fed.
We’re on a direct path to higher inflation, despite the Fed’s preference for raising the deflation spectre and citing the low (and ridiculously-calculated) CPI.
While the Fed is printing money with abandon right now (e.g. buying all new Treasury issuances for the next six months), doing so is raising the risk of a hyperinflationary currency collapse.
US government bonds are a disasterous investment going forward (even if the deflationists are right).
The revolving door between Wall Street and Washington motivates our leadership to preserve the status quo, which is corrosive to markets because smaller investors are waking up to the fact that the rules are stacked in favor of the big players. Investing as we have historically thought of it is dead.

Source: Business Insider – Clusterstock, January 16, 2010.

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Read more on Federal Reserve at Wikinvest

Fed “consistently and repeatedly messes up everything,” says Faber | FavStocks

January 19, 2011 at 1:00 pm

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Troy Lynch

January 19, 2011 at 9:19 pm

Using technical jargon, when the number of indirect exchange commodity units (dollars, euros, etc.) are increased beyond a finite amount (e.g. available gold or silver) there are more units (money inflation) chasing the same number of goods, therefore the unit-denominated price of those goods increases (price inflation). It gets worse: if the increase comes in the form of a reduced time price of money (interest rates) then this distorts the financial and physical structure of the economy in favour of production goods, which results in a false boom; the consequent adjustment must take place when it is revealed at some future point that consumers have not in effect, demanded these goods, based on available savings, and their willingness to pay. Banks will increase the quality of their credit, and reduce credit. What follows is the unwinding of the false boom. Mainstream economists fail to take any of this time adjustment into account.