Monday, August 5, 2013
Marc Faber : I believe one day, Paper Money & Financial Assets will be destroyed
SMN: Has the Cyprus confiscation got you worried about paper money and the banking system in general?
Marc Faber : I was just now writing about the 1970s, because I started to work in 1970. At that time, I can tell you precisely, the US Stock Market capitalization was slightly in excess of $800 billion. The total bonds market at that time was slightly below $800 billion. These are total global bonds. Over the last 40 years, we had a huge expansion of the financial sector as a percent of the real economy. There has been GDP growth and some countries opened up, like China and the former communist countries, that I concede. But still, on top of a real economy that is say 100, we’ve built financial sector liabilities of something like 1,000. In other words, the financial markets completely dwarf the real economy.
I believe in reverting to the mean. In other words, at some stage, every inflation leads to deflation in that particular sector, whether it’s housing, the NASDAQ, the NIKKEI, or whatever it is. I believe one day, paper money and financial assets will be destroyed, but I’m not saying tomorrow. Maybe it happens from a market capitalization that is much higher. Someone said to me, “The DOW Jones will go to 100,000.” Yeah, it’s possible. If you print money, everything is possible.
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Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.
Posted by Nicole Bourbaki