Friday, October 25, 2013

Bond Burglars to Bring Bears Out of Hibernation

By Marc Faber, The Daily Reckoning Oct 25, 2013, 11:20 AM 

Although the Fed may realize (though I doubt it) that the current asset purchases have minimal impact on the real economy of the majority of American people, they probably think that continuous monetary stimulus is the lesser of two evils. This is a wrong assumption, in my opinion, because prices are rising far more than wages and salaries.
Moreover, the Fed wants to stimulate credit growth with its artificially low interest rates. But again, credit growth has largely lost its impact on the real economy. The multiplier on GDP of an additional dollar of debt is now negligible.
I suppose that the conclusion we can draw from it is that the larger the debt as a percentage of the economy becomes, the less will be the impact of an additional dollar of debt. I actually think that there is a tipping point where additional debt has a “contractionary” effect on the economy, because at this tipping point, the debt becomes so large that interest rates will increase no matter how much a central bank monetizes the debt. (Subsequently, inflation accelerates and the currency collapses, which leads, contrary to Mr. Bernanke’s view, to a general impoverishment of the population.)

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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.

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