America’s central bank, the Federal Reserve, will eventually destroy the world economy, says respected Swiss investor Marc Faber.
The only consolation is that its crazy policies give investors an easy way to get rich.
In an interview with Bloomberg, shortly after the Fed launched its third bout of quantitative easing (QE), the 66-year old Faber warned that ‘eventually we will have a systematic crisis and everything will collapse’.
QE damages the economy and creates bubbles, says Faber. ‘There is a huge misconception and fallacy that money printing can actually improve the rate of employment because the money flows down into the system.’
But what really happens, says Faber, is that the extra money ‘goes first into the banking system and into financial institutions, into the pockets of well-to-do people’.
Another side effect of QE is ‘increased government involvement in the economy and we have the government growing with its regulation and legislation that stifles economic development’.
Faber, who writes the Gloom, Boom and Doom newsletter, believes that more money printing is a certainty. Even if Ben Bernanke – the Federal Reserve chairman – was to leave, his replacement would also be a ‘money printer’ while central banks in other parts of the world are just as bad.
‘The Europeans will print money. The Chinese will print money. Everybody will print money and the purchasing power of paper money will go down.’
The plus side of all this, says Faber, is that it is easy for investors to back the right assets. He thinks ‘equities are a better space to be in than bonds’, and within equities he favours the cheapest.
‘I bought equities in Portugal, Spain, Italy and France because they were unbelievably distressed.’ He also thinks the Chinese stock market looks depressed. But he warns investors to steer clear of America noting that it ‘has massively outperformed European markets [and] Asian markets’.
Gold should be another beneficiary, says Faber. ‘That the trend for gold prices will be steady, but the trend for the dollar and other currencies will be down. In other words, in dollar terms the price of gold will trend higher. How high it will go? You have to call Mr Bernanke.’
James McKeigue
Contributing Writer, Money Morning
Publisher’s Note: This article originally appeared in MoneyWeek
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