Marc Faber predicts US hyperinflation like Zimbabwe
Posted on 28 May 2009 with no comments from readers
Images from the Weimar Republic of housewives using currency to heat their homes are bound to surface again as commentators discuss Dr. Marc Faber’s prediction of hyperinflation for the modern United States.
In an interview with Bloomberg TV he said: ‘The U.S. economy will enter hyperinflation approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates.’
Dr. Faber claimed inflation might get to rates ‘close to’ Zimbabwe where inflation has reached 231 million per cent recently. He left no doubt about his prediction.
‘I am 100 percent sure that the U.S. will go into hyperinflation. The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.’
Over-the-top
Now perhaps the original Dr. Doom has lost it, or at least got a little carried away with the strength of his analogy. It is hard to equate the market savvy Obama administration with the corrupt court of Robert Mugabe, or to imagine a scenario that would bring such economic devastation.
But what Dr. Faber’s hyperbole does flag up is the possibility of a return to the inflation levels of the 1970s, or indeed something worse. It is true that what politicians are doing to head off an economic slump today does indeed have consequences for future inflation levels.
In short, pumping money into the global economy will eventually prove inflationary. The money supply is being recklessly expanded to accommodate rising levels of public spending, largely on zombie banks and bankrupt automobile companies.
Government control
At the moment this new money is only compensating for a collapse in the private sector, global trade and consumer spending. But it is far harder to take money out than put it in, and Dr. Faber’s point is that left-leaning politicians will be reluctant to downsize the public sector at the appropriate time.
The investment conclusion he draws is that gold and silver are the best options to beat inflation and that buying US treasuries is likely to be a complete disaster. Those buying T-bonds in the auctions this week might care to reflect on what hyperinflation, or something close to it, would mean for this asset class.
Oil or black gold would be another clear and major beneficiary from a trip down the hyperinflation road.
no Comments posted by readers:
Rick’s Picks takes precisely the opposite view and shows good logic – but perhaps ignores the government response:
“A rising dollar is most surely not what the world needs right now, since it will increase the real burden of debt on all who owe dollars. That is the crux of deflation, not the increase in the money supply that inflationists have been blathering about for years. Who cares what the supposed money supply is? Most of the yo-yos who cite growth in the money supply as inflation per se don’t even know the difference between money and credit. You should pay them no mind in any event, since the far more important concern, at both the personal and macroeconomic levels, is whether your and everyone else’s debts are becoming easier to service, or harder. As long as the latter condition persists – and it will, unless a bailout package comes along that arbitrarily adds three or four zeros to every American’s bank account – all who owe will be subject to the asphyxiating effects of deflation.
$13 Trillion Just ‘Spit’
A deflationary outcome might seem highly unintuitive at the moment, given that the U.S. is in the throes of the biggest fiscal and monetary blowout since the founding of the Republic. But as we continue to point out, the $13 trillion that has been expended already on bailout this-or-that is just spit compared to a global asset deflation that has already sucked $60 trillion to $80 trillion of asset values into a black hole. We think this trend will continue and that asset values have much farther to fall before deflation has run its course in perhaps five or six years.”
Marc makes a bold predition and I think his comment on the interest rate is spot on:
‘The U.S. economy will enter hyperinflation approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates.’
The self-entitlement USA society cannot and will not tolerate high interest rates.
“Now perhaps the original Dr. Doom has lost it”, perhaps but to call the Obama administration “market savvy” indicates that you certainly have.
I’m not a Republican, Democrat or even American _ I don’t have an axe to grind against Obama. But it seems to me, and I can’t be the only one in the world thinking this, that Obama is going to tax and spend America into economic oblivion…
What specific economic policy that he has enacted is actually producing results now? & fear mongering (which you Americans are addicted to) about what if scenarios don’t count.