Tuesday, November 24, 2015
Marc Faber : I distinguish between Productive Credit & Unproductive Credit
TD: Marc I saw some recent commentary of yours indicating that there’s only so much debt-funded capital investment a person can make in their business before the debt becomes superfluous, unhelpful. Can you talk to that?
Marc Faber : Well, I distinguish between productive credit and unproductive credit. A productive credit is something like—let’s say we start a company. We buy the land. We build the factory. We acquire machinery and inventories and we hire people and then we produce either goods or services.
That credit is then serviced by the cash flow our businesses will generate and by the earnings over time, we will repay the loan.
An unproductive credit is a credit whereby you and I borrow money to go and gamble in Las Vegas, or buy a car. Then every month we have to pay off that loan. So that unproductive credit loan, in the initial stages of society, yes it stimulates economic growth above the trend line because future demand is advanced to today.
Otherwise, people would save for ten years and then buy a car. Now, they can buy the car today and pay it off over time. But unless the wages go up substantially, it’s a very unproductive credit.
Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.
Posted by Nicole Bourbaki