Faber: Fed Acted Like a Liquidity Drug Dealer
Faber calls out the Fed for their responsibility in the current crisis:
Excerpt:
Liquidity will dry up even more, volatility will stay high and financial assets are going to suffer as the crisis continues to unfold. The bailout plan is unlikely to work and the global economy will take the hit, he predicted.
“People rely on the people in Congress, at the Fed, at the Treasury, people that brought us into this trouble, to take us out of trouble. I don’t think they will succeed,” Faber said. “We can have recovery rallies but a new high on the S&P is practically out of the question for a very long time. In real terms, equities are still very high and economically, I think the world will go into a slump.”
“Next year, if the economy in the U.S. is as weak as I think it would be, the trade and the current account deficit will continue to contract,” Faber said. “When global liquidity contracts, it’s not a good time for financial assets.”
Other sources of funding, such as foreign reserves of resources-rich countries, are also likely to dry up, Faber said. “I think sovereign wealth funds are going to be very busy supporting their own markets, they won’t have much money to buy assets around the world.”
The next emergency measure will be that Americans are not allowed to buy foreign currency and transfer money overseas, and the next measure will be not permitting Americans to buy gold and so on and so forth… It creates even more uncertainty in the market place when you continually change the rules.
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Source:
Fed Acted Like a Liquidity Drug Dealer: Economist
CNBC.com | 23 Sep 2008 | 05:10 AM ET
http://www.cnbc.com//id/26848829
Thursday, September 25, 2008 | 03:30 AM | Permalink
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Comments
We are so screwed.
Econ101
Posted by: Economics 101 | Sep 25, 2008 3:48:16 AM
I would only add that it appears that no matter how you slice it, rates are going to go up around the world. Faber's point is just another side of the same coin. When global liquidity dries up, rates will rise.
Interestingly, Paulson was quick to point out today that he wouldn't use all $700 billion at once, thus assuaging concerns about government competition for the dwindling credit markets.
Posted by: Darin | Sep 25, 2008 3:55:44 AM
At one point it becomes obvious that we are just going to have to take our lumps on this. We should concentrate on what will rise out of it rather than how to postpone it.
Posted by: debreuil | Sep 25, 2008 4:06:06 AM
Fed should not fight the last war.
Ben is going to cut .50 next meeting and I don't think we need to worry about another lending spree. It was about bad credit risk analysis last time. Everyone is jamming into treasuries anyway
Posted by: Steven | Sep 25, 2008 4:06:13 AM
Barry Ritholtz,
I think it would be really helpful if you posted something stating that a rescue bill whose only concession from the Paulson draft consists basically in some restrictions to executive pay would still be a total robbery...main points, in my view, are TRANSFER OF WEALTH FROM TAXPAYER TO WALL STREET and POTENTIAL MONETIZATION OF DEBT AND LONG TERM HYPERINFLATION
~~~
BR: You just did.
Posted by: LooksLikeItIsTooLateToWakeUpAmerica | Sep 25, 2008 5:13:04 AM
The politicians have little time to get things on the "right track" before elections . Fear mongering is rampant. I truly believe this is the biggest dupe on the American taxpayer in history . Maybe will be the biggest turnover in politics in history as well. Living this is SOOOOO exciting. So .. if we are so screwed what are we going to do about it personally . How do we invest personally ( or not invest personally ) How do we get out of 401ks with restrictive loan rules and tax consequences - a mere 50k out ain't gonna save a thing .
Bill
Posted by: Bill | Sep 25, 2008 5:28:00 AM
Yes, this is the time when you either go to your room, or get your spanking. Oh please! Daddy, I didn't do anything wrong.
--------------
LooksLike, you mean transfer from "U.S. Bond buyers to Wall Street. I am tired of people suggesting that it is the U.S. taxpayer that is paying for this. They can't, they have no money!!!
Posted by: JustinTheSkeptic | Sep 25, 2008 5:37:52 AM
I am not saying hyperinflation is good...but it could bring prices and wages in line with housing prices if wages went up in tandem with other prices. Of course the formula for inflation could be tweaked around even more to show inflation was under control so no cost of living allowances would be approved and everything will be priced at the same level as housing.
Posted by: Mike | Sep 25, 2008 6:14:35 AM
"People rely on the people in Congress, at the Fed, at the Treasury, people that brought us into this trouble, to take us out of trouble."
Only few in congress have ever questioned the recklessness of Greenspan. Congress is clueless, the Fed is a consortium of private banks who since inception has taken more and more power for itself and current treasury confuses itself with a modern cesar. And the these institutions will solve the problem?
Posted by: Katie | Sep 25, 2008 6:15:45 AM
@Mike -well inflation is already underreported .Read www.shadowstats.com to understand the extent.
Posted by: Dsylexic | Sep 25, 2008 7:19:24 AM
@Katie-Yeah, I know inflation is well under reported. I tried to indicate that by saying inflation could be tweaked around even more. Should have said inflation data could be tweaked around even more than it already is.
Posted by: Mike | Sep 25, 2008 9:03:40 AM
Marc Faber is spot on with his criticism of the Federal Reserve. The cronies in Washington who are making their own laws to support their criminal actions, are now grabbing into the pockets of US taxpayers to accommodate the cries for mama on Wall Street. This bail-out might be necessary to avoid a financial meltdown not unlike in the Great Depression, yet there is no talk about repercussions for Wall Street's greed. In 2007 Wall Street paid out 20 billion dollars in compensation. As we now witness this was done under false pretense. Diverse pundits and hacks point towards reduced paychecks on Wall Street because of slumping equity values, yet they still get multimillion dollar golden parachutes. If taxpayers bring 700 billion dollar to the table Wall Street's executives should bring their wallets with their bonuses and then some more.
Posted by: Alfred | Sep 25, 2008 9:29:49 AM
The ultimate source of drugs were Asian command economies based on the export model, esp. China. They were willing (and still willing, so far?) to give us goods in exchange for our cheap dollar and then recycle by buying mostly treasuries and agency paper. I know, the Fed bears most of the blame for their stupidity, but everyone else in the media appears to have missed this other player in the dance. Takes two to tango.
Posted by: Jason | Sep 25, 2008 9:50:03 AM
They were willing (and still willing, so far?) to give us goods in exchange for our cheap dollar and then recycle by buying mostly treasuries and agency paper.
I always figured China acted as a gigantic inflationary heatsink in this way.. Problem is, eventually heatsinks get full and can't radiate any more, at which point overheating is quick and catastrophic..
Posted by: Dr. Kenneth Noisewater | Sep 25, 2008 10:23:18 AM
SWFs will simply turn the other cheek. China, on the other hand, is already choking on Treasuries. They've already stopped lending to the banks - its only a matter of time before they stop lending to the government.
Posted by: Michael | Sep 25, 2008 11:25:31 AM
