Marc Faber is wrongOctober 7, 2008
I have a ton of respect for him, I read all his reports with great interest, his track record is as solid as they come, but I think on this issue he is wrong. Who, either Americans or foreigners, will feel the most pain as a result of our current global economic upheaval? More than 70% of America’s economy is consumption. The idea that GDP will not contract significantly and unemployment will not rise dramatically should Americans no longer have the purchasing power to consume is pure fantasy. A service based economy with no production and no savings can more easily develop into a spiral of losses because the entire system is based on a trust that consumers will repay their debts. Who is going to lend Americans any money after this debacle? Marc believes Americans will simply “get slimmer” but those who sell Americans their products will suffer more broadly from a lack of customers. That’s just totally false. If we know anything about people it’s that our ability to consume is almost infinite. Give a man a million dollars and he will find a way to spend it. Give a man a billion dollars and he will find a way to spend it. Anybody can consume. Consumption is easy and fun, the trick is production. Eventually the Chinese will realize the folly of sacrificing their resources, energy and labor in exchange for pieces of paper that will never be redeemed at fair value due to inflation. The Chinese are more than capable of consuming their own products, they just need to let their currency appreciate to make those transactions profitable for producers. When the music stops, the one without a chair loses… and they have all the stuff, isn’t that what this game is all about? You can keep the paper, I want the stuff. The Chinese will also begin to spend their dollars acquiring foreign assets, or should I say, “repossessing” foreign assets from Americans who are defaulting on their debts. By the end of this crisis, every solid income producing asset will be owned by an Asian or Arab. It’s the equivalent of farmers being unable to pay their bills from the income generated by selling eggs and milk, so now they’re selling off their chickens and cows. How can a creditor possibly go bust before his debtor? Foreigners will own the means of production in America and abroad, yet they are supposed to suffer more? I don`t think so.
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Eat your words and it only took a month.
What are you talking about? Are you one of those people who thinks we can stimulate our way out of this crisis? This is a long term problem and this post is a long term analysis. The re-alignment has barely even started! Aren’t you reading about Americans and Europeans begging Arabs and Asians to bail out the IMF? Just wait another year or two before you draw any conclusions.
Reverse Marshall Plan?
http://www.koreatimes.co.kr/www/news/biz/2008/12/123_35516.html