US Inflation Could Hit 200%: Dr. Doom

Some of you may also enjoy these interviews.

In the first (2009) he forecasts major inflation in the US, as a strategy of getting out of debt

In the second (1998) he forcasted a crash due to leveraging, blames globalisation, claims the IMF was doing more harm than good, and has an interesting twist to the explanation of the protracted crisis in Japan (due to cultural reasons related to saving).

Best wishes!
Arno


http://www.cnbc. com/id/29047443


Topics:Currencies | U.S. Dollar | Western Europe | Europe | Africa | Ben Bernanke | Federal Reserve | Politics & Government | Interest Rates | Economy (U.S.) | Inflation | ECB | Italy | The Netherlands | Germany | France | Britain | Economy (Global)
By: CNBC.com | 06 Feb 2009 | 03:28 AM ET
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The US risks being hit by Zimbabwe-style hyperinflation and there are signs that the world's biggest economy risks turning into a banana republic, Marc Faber, author of the Gloom, Doom & Boom report, told CNBC's "Asia Squawk Box."
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"In the US, we have a totally new school, and it’s called the Zimbabwe school," Faber said. "And it’s founded by one of the great leaders of this world, Mr Robert Mugabe, that has managed to totally impoverish his own country. And that is the monetary policy the US is pursuing."

The government's increased intervention in the economy is likely to slow down economic growth because history shows that every time the private sector shrinks to make way for the government sector, the economy suffers, he said.

Asked whether the US risked being faced with 200 percent inflation, Faber answered: "Well, not yet. Not yet. But I think eventually. If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate."

The Federal Reserve's policy of printing money and the government's intervention in the economy might undermine the US's economic and political clout, Faber warned.

"Well, I wrote two years ago a report entitled 'Is America becoming a banana republic?' And there are some features that characterize banana republics- totalitarian states, very strong government intervention into the economy, and the polarization of wealth," he said.

"And we have all these trends occurring in the US. We are not yet there. And in theory it could be reversed, but I doubt it will be," Faber added.

Because of these factors, US government and corporate bonds, including that of CNBC parent General Electric [GE 11.44 -0.24 (-2.05%) ] , should be downgraded, he said.

"Yeh, I think GE should be a junk bond. But I also think the US government should be junk," Faber said, adding: "I don’t pay much attention to rating agencies. The rating agencies have totally failed over the last 3-4 years to identify sick companies."

© 2009 CNBC.com




http://www.abc. net.au/foreign/ stories/s317734. htm


WORLD IN FOCUS
Interview with Marc Faber


Broadcast: 23/6/1998
Interviewer: George Negus

Transcript:
Faber: (predicting world depression during an earlier interview with George Negus in January 1998) You tell me where it will end? I tell you it will end all in disaster. But will it end in disaster tomorrow...in three months, six months, nine months - that I don't know, but I tell you the whole system is at threat because of the leverage the world is living on....

23/6/98

Negus: Marc when we talked back in January your predictions about the Asian crisis were pretty dire. Given the events of the last couple of weeks, how would your gloom and doom report, if you like, describe the situation in Asia at the moment?

Faber: Well, I think that the Asian economies have essentially collapsed. We have really economic misery which has been compounded by a very high foreign debt level, and when you have your local currency collapsing by fifty percent or eighty percent, as in the case of Indonesia, then obviously your foreign debt becomes extremely burdensome.

Negus: The IMF are predicting an economic contraction in Asia of somewhere between three to five percent, but your report suggests somewhere between ten and fifteen, which is one heck of a discrepancy. Why is your prediction so much more bleak than theirs?

Faber: Well in my opinion the IMF doesn't really understand what they are talking about and they also don't really understand the problems Asia are facing. I'd like to remind you that the IMF had its annual meeting here in September, at which stage they were still quite optimistic about Asia and they thought that the crisis of the Thai baht was unique and that it wouldn't spread or have a contagious impact on the other countries and thereafter everything collapsed. Everywhere in Asia the imports are collapsing by forty to fifty percent. Car sales in Malaysia, in Thailand, Indonesia are down in the order of seventy-five percent... tourism is down twenty-five percent in Hong Kong... So if someone talks about the contraction of just three percent he's dreaming. The contraction is much more severe than that.

Negus: It sounds to me, and I think this was your attitude when I spoke to you earlier this year, that the IMF and other world monetary bodies like the IMF are part of the problem, not part of the solution.

Faber: Well, the IMF each time it bails out a country it distorts the market, and it prevents the market from clearing entirely... it's like the Japanese government, by trying to bail out the banks and other financial institutions over the last seven years, has prevented the Japanese economy from clearing entirely, and therefore the pain in Japan... we are now eight years into the recession, it's still there.

Negus: Do you think that Japan should in fact take the measures that are being suggested to them? Do you think they should make the reforms that are being asked of them?

Faber: But you see, the problem is that you go into these countries and you ask them to reform... the problem is that a number of these countries got into trouble because of the reforms they implemented in the first place. As a result of this globalisation drive a lot of countries opened up their financial markets... they opened up their markets for imports, and therefore they began to run very large trade and current account deficits, plus the money kept on coming in and created bubbles, and when the money exited it created these depressions we have today. So to say, yeah let's go and reform... concretely it's not all that easy.. Furthermore, different countries have different cultures. How do you want to force the Japanese to consume? They don't have homes like in America and Australia where you can park three cars in front of your house. They live in very small spaces - so how many beds, TV sets, furniture items can they buy? It's very limited. They consume to some extent by travelling overseas, that they do, but in addition to that if you look at Japan, the decline of interest rates since 1990 had the following impact. Assuming you are a Japanese and you have the equivalent of one million dollars on deposit at seven percent in 1990, and today you're getting one percent, what is your reaction to that?... to spend more, or to save more?

Negus: Is there a simple way to begin solving this problem?

Faber: It took Japan a long time to get into trouble, and it will take a while to get out of trouble. Having said that, if today someone would put a gun on my head and say "either you buy the Dow Jones in the United States, or the Japanese stock market", I would rather buy the Japanese stock market, because at least in Japan you have a country that has a large trade in current account surplus, whereas in the U.S. you have a country that essentially suffers from similar symptoms that the Asian countries suffered before the crisis - mainly large trade and current account deficits - and of course a lot of debt of the U.S is held by foreigners, and if one day the foreigners decide to exit the U.S. dollar and to sell these assets, the market will plunge. The European market and the U.S. market are up in the sky and will have a very rude awakening within the next two years where these markets could easily decline by fifty percent.

Negus: What's your ultimate prognosis - total breakdown, or do you think we'll stumble on for some time to come?

Faber: Well, personally I'm extremely concerned by the growth of wealth inequality in the world. The wealth inequality's manifested on two levels - inequality between the rich countries and the poor countries, which since 1990 has actually increased very dramatically, especially now following the currency devaluations - and wealth inequality in countries themselves. The typical worker in the Western world, or in Australia is today no better off than ten years ago. However, some people who participated in the bull market of financial assets... they have done extremely well. So you have this disparity between the super rich - the type like Bill Gates, who has a worth close to $US50 billion - and the average worker who's real income hasn't increased. And that in my opinion is bad, because the people who actually would like to consume - the workers and the people living in the third world or in developing countries... they don't have the money to consume - whereas the people who have the money, they already own everything, they don't need to consume anything. And therefore this may very well lead, according to the wealth inequality business cycle theory, to a serious economic downturn.

Negus: Marc Faber, it's always good to talk to you... and you've got to learn to say what you really believe, instead of hedging your bets. Thanks again.

Faber: (laughs) I don't think I hedged them too much.

Hardly suprising!! the new LBVPHT category

Central Bankers Confront A New Inflation Calculus

Published on Saturday, January 26, 2008.

Source: Wall Street Journal

Central bankers pondering what to do in the event of a U.S. recession are finding that inflation just isn't what it used to be.

In the past, when the U.S. economy faltered, slack demand for everything from oil to wheat pushed global commodity prices lower. That made the jobs of central bankers easier: They could cut interest rates without worrying too much about inflation.

But several factors, including the surge in demand from emerging-market heavyweights like China, are set to keep commodity prices high during this downturn, putting policy makers and businesses in a pickle reminiscent of the stagflation-plagued 1970s.

In the short term, the quandary means central bankers across the globe may be reluctant to bring down rates as far or fast as they otherwise would to support growth. In the long term, it signals that the global golden age of low inflation may be ending.

In the past year, "the possibility of a sustained rise in commodity prices has jumped into the list of the top three things many of our clients worry about," Edward Nusbaum, chairman of the board of accounting and consultancy firm Grant Thornton International, said in an interview in Davos. Mr. Nusbaum was set to debate the topic Friday with other Davos bigwigs on a panel called "How Much for the Basics?"

Inflation angst is widespread. Italian Prime Minister Romano Prodi this month appointed an inflation czar, a post known as Mister Prezzi (Mr. Prices), to keep an eye on rising consumer costs. Chinese Premier Wen Jiabao has said persistently high oil prices, rising agricultural-product prices and financial instability pose new problems for the global economy.
'Real Risk of Stagflation'

Developing countries are particularly vulnerable. "There is a real risk of stagflation in these countries, with drastic consequences," said Columbia University economics professor and Nobel laureate Joseph Stiglitz in an interview in Davos. Food and energy make up a far larger share of price indexes in developing countries, where many people lack the wherewithal to absorb higher prices.

To be sure, the inflation spikes of the 1970s aren't likely to stage a global comeback. World-wide, rates of inflation start from a far lower level than in the '70s. Japan hasn't completely licked deflation. A severe U.S. recession could yet puncture a commodity-price bubble or offset it with falling prices elsewhere in the world economy.

But after years of persistently low inflation, prices are rising at a faster clip in the developed world -- and some of the jumps in food and energy prices are spilling over into other areas. From 1996 to 2006, consumer prices in advanced economies rose 1.9% a year, on average, according to the International Monetary Fund. Last year they rose 2.4%. In a conference call with investors yesterday, Hershey Co. Chief Executive David West said the candy maker has seen "an unprecedented run-up in costs over the last couple of years."

That is worrying U.S. Federal Reserve Chairman Ben Bernanke. The threat of similar spillovers also is preoccupying the European Central Bank. Headline inflation in the 15 countries that use the euro hit a 6½-year high of 3.1% in November and December, well above the ECB's preferred range of just below 2%. Persistent inflation pressures and the threat of a wage-price spiral underlie the ECB's reluctance to follow the Fed in cutting interest rates, despite signs of slowing euro-zone growth.

Some economists worry that rising prices will prevent rate cuts by the ECB and the Bank of England -- which, unlike the Fed, have inflation control as a primary mandate -- and so worsen the coming slowdown. "The biggest concern at the moment is that these central banks could hold on too long and therefore exacerbate the downside of the growth outlook because of their concerns about the inflationary environment," said Stuart Green, economist with HSBC in London.

A New Inflation Calculus

The new global inflation calculus has several causes. In the U.S., the productivity gains of the 1990s tech boom are wearing thin, and companies today are more focused on things like share buybacks than investment in plants and equipment. As a result, the economy can't grow as quickly without stirring inflation.

Many economists, including former U.S. Fed Chairman Alan Greenspan, also argue that the entry of millions of Chinese, Indian and former communist-country workers into the world economy was a one-time disinflationary force that is losing its oomph.

Globally, increasing emerging-market demand appears to be putting prices of food and energy on what may be on a long upward path. Powerhouses such as China and India are at a particularly resource-intensive phase of development. Burgeoning middle classes are shifting to more protein-rich diets, sending meat, milk and feed-grain prices higher. As more people buy cars, air conditioners, televisions and the like, demand for raw materials rises. Developing-market infrastructure needs also are contributing, as is a focus on commodity-hungry industries.

But some economists say accepting strained resources as a long-term inflationary force means accepting the argument that emerging markets will continue to surge even as U.S. growth slows. Not everyone buys that.

"A good part of what we are seeing in commodity prices today is cyclical and not long-term trend," said Kenneth Rogoff, a Harvard University economics professor and a Davos regular, in an interview. "If the U.S. really goes into a deep, prolonged recession, commodity prices are going to get slammed."

Write to Joellen Perry at joellen.perry@wsj.com and Justin Lahart at justin.lahart@wsj.com

Copyright © 2006-2007
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hmmm.. Putin criticizes handling of inflation

MOSCOW — Russia needs to do more to deal with inflation, which soared to 11.9 percent last year and could exceed government's forecasts of 8 percent this year, President Vladimir Putin said Tuesday.

Putin, however, told members of Russia's upper house of parliament that he was confident the problem would be brought under control, and he made wide-ranging calls for improvements to the country's welfare system.

The remarks appeared aimed at setting a future agenda for Putin, who has said he will become prime minister if his favored successor, First Deputy Prime Minister Dmitry Medvedev, is elected in the March presidential election.

Although the economy has boomed under Putin's eight years in office, low-income earners and pensioners have struggled to keep pace with the rise in prices for staple goods.

Inflation reached 11.9 percent in 2007, exceeding the government's initial forecast of 8 percent. Economic Ministry projections released Monday said inflation could hit 1.8 percent this month, which puts the economy on target to exceed last year's figures.

Putin expressed concern about the drop in volume of savings accounts, saying that indicated inflation had begun to leave its mark. He also called for pensions and salaries of public sector employees such as teachers and healthcare workers to be raised and urged additional support to be provided for families.

Under Putin, the government has initiated a series of so-called "national projects" aimed at improving the country's public health, education, housing and agriculture sectors. The projects are overseen by Medvedev.

"We have gained experience in the development of social welfare while implementing the national projects," he said.

Government coffers are flush these days with oil and gas-tax revenues pouring in as a result of record high world oil prices and pressure has grown from some lawmakers to spend the money filling up the Stabilization Fund _ a fund designed to sop up extra oil money and keep inflation in check.

But Putin warned against resorting to populist measures.

"It is easy to promise everything, and even achieve it formally, but these promises can end up in dashed hopes and negative effects on people's welfare," he said.