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Faber: The Fed will continue to be behind the curve

Marc Faber was on CNBC talking about the intersection of asset markets with monetary policy. His view is that the Fed will be accommodative for the indefinite future, resulting in a move into riskier assets by investors starved for real returns in fixed income. This could be a boon for asset markets in nominal terms. He believes that, while the Fed may raise rates, it will continue to be behind the curve. This policy will act as a tax on consumers as price inflation of basic necessities will run well ahead of the rise in wages.

Video below.

I should note that the discussion of hard-working rich people versus lazy poor people is not a view I share. You can see Becky Quick’s viscerally negative reaction to his comments at about the 9 minute mark. I applaud her pushback on this score. All too often wealth is accumulated illegitimately through connections.

Faber makes an argument that enables the deception I have dubbed corporatism masquerading as liberty. Moreover, the undertones are offensive. Faber is making a manifest destiny type of argument based on a belief in the so-called protestant work ethic. Essentially, Faber is implying that wealth is usually the visible manifestation of a strong work ethic whereas poverty could be considered a visible manifestation of the opposite. Am I reading this wrong? And if so, how do we explain the bailouts based on this?  The logic simply doesn’t hold together.

I agree with Faber, however, that inflating the money supply acts as a hidden tax that redistributes wealth via asset markets.

On the whole, this has to rate as one of Faber’s worst performances, in my view.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

3 Comments

  1. Ed, as an Austrian enthusiast myself, I can assure you that you misunderstood Marc Faber. ;)
    As Faber indicates, he can’t go into (intellectual) detail on TV due to time constraints, so let me explain:

    America has transformed from a low regulatory, low tax economy, to an increasingly European style socialist system of high taxation and transfer payments. A large amount of lower class individuals are dependant on social security, food stamps, subsidies, healthcare transfer payments as part of the welfare system. This is all funded by taxes (not even mentioning the deficits). This disincentives the working classes to perform at their optimum level, since not all fruits of your labor are yours anylonger. The state basically confisqates your fruits by taxation.

    The majority of people rely on part of the welfare system, one way or the other. This way the riches are outnumbered by the huge beneficiaries of the welfare system. This creates incentives to transfer wealth overseas, lobby your representatives in the House/Congress to change policy. So the democratic system is becoming a tiranny on the minority of well to do people. As Faber said: the system has become disfunctional. Everybody wants to rip of the system for their own wellbeing. And monetary inflation complements the government’s ability to pay for entitlements, while in fact the problem is too much spending and unfunded promises that can never be paid. That is what Faber meant.

    The above shows you the outcome of socialism. The welfare state erodes the incentives of the individual to perform and pursue the best of his ability due to confisqation of the fruits of your labor. The middle class pays most taxes, but the riches pay pro rato also very substantially. The philosophy of capitalism has changed to European style socialist entitlements. A dead end eventually.

    Add to that the corporatism and the backdoor politics, lobbygroups etc. and you have the perfect mix for a two party system to essentially a one party system, competely dysfunctional, corrupt and inefficient. Hence, money = power.

    The Founders never wanted a democracy. They selected the Republic, where Congress is reigned in under the Constitutional law, thereby protecting the rights of the individual, maximizing freedom and prosperity for all…

    Ron Paul is the only one who really gets it in Washington these days. Fiscally conservative for limited constitutional government. Back to what the founders intended the US to be… Free of slavery.

    Hope that clarifies.

    • Thanks, that certainly sounds a lot better than what I thought Marc Faber was saying there. If you think government is siphoning off your wealth illegitimately, you will try to protect your assets. That’s what he should have said and dispensed with the whole narrative about people sucking at the teat of the welfare state in juxtaposition to the hard working wealthy.

  2. Ed, as an Austrian enthusiast myself, I can assure you that you misunderstood Marc Faber. ;)
    As Faber indicates, he can’t go into (intellectual) detail on TV due to time constraints, so let me explain:

    America has transformed from a low regulatory, low tax economy, to a European style socialist system of high taxation and transfer payments. A large amount of lower class individuals are dependant on social securty, food stamps, subsidies, healthcare transfer payments as part of the welfare system. This is all funded by taxes (not even mentioning the deficits). This disincentives the working classes to perform at their optimum level, since not all fruits of your labor are yours anylonger. The state basically confisqates your fruits by taxation.

    The majority of people rely on part of the welfare system, one way or the other. This way the riches are outnumbered by the huge beneficiaries of the welfare system. This creates incentives to transfer wealth overseas, lobby your representatives in the House/Congress to change policy. So the democratic system is becoming a tiranny on the minority of well to do people. As Faber said: the system has become disfunctional. Everybody wants to rip of the system for their own wellbeing. And monetary inflation complements that ability to pay for entitlements, while in fact the problem is too much spending and unfunded promises that can never be paid. That is what Faber meant.

    The above shows you the outcome of socialism. The welfare state erodes the incentives of the individual to perform and pursue the best of his ability due to confisqation of the fruits of your labor. The middle class pays most taxes, but the riches pay pro rato also very substantially. The philosophy of capitalism has changed to European style entitlements. A dead end eventually.

    Add to that the corporatism and the backdoor politics, lobbygroups etc. and you have the perfect mix for a two party system to essentially a one party system, competely dysfunctional and inefficient. Hence, money = power.

    The Founders never wanted a democracy. They selected the Republic, where Congress is reigned in under the Constitutional law, thereby protecting the rights of the individual, maximizing freedom and prosperity for all…

    Ron Paul is the only one who really gets it in Washington these days. Fiscally conservative for limited constitutional government. Back to what the founders intended the US to be… Free of slavery.

    Hope that clarifies.

    • Thanks, that certainly sounds a lot better than what I thought Marc Faber was saying there. If you think government is siphoning off your wealth illegitimately, you will try to protect your assets. That’s what he should have said and dispensed with the whole narrative about people sucking at the teat of the welfare state in juxtaposition to the hard working wealthy.

  3. Anonymous says:

    There was perhaps not enough time given to Faber for his explanation, such that his choice of language easily comes across sounding like emotive anti-welfare talking points with which we are all familiar. The single-mother generalizations on education with allusions to Jim Crow regarding voter representation certainly didn’t help here. But what can one expect when an Austrian Economist is asked to explain a concept that is more familiar to behavioural economists?

  4. Anonymous says:

    There was perhaps not enough time given to Faber for his explanation, such that his choice of language easily comes across sounding like emotive anti-taxation talking points with which we are all familiar. The single-mother generalizations on education with allusions to Jim Crow regarding voter representation certainly didn’t help here. But what can one expect when an Austrian Economist is asked to explain a concept that is more familiar to behavioural economists?