Dr. Marc Faber is one of the most insightful market analysts and economists that I know. I had the pleasure of meeting him in 2006, and read many of his books and newsletters over the years. He's a regular contributor to Barron's, and the editor of the Boom, Gloom, Doom Report.
The attached video from Bloomberg today is spot on accurate in my opinion regarding the stimulus package and government intervention, in general, to get the economy going. What did George Bush say? "We had to kill free markets in order to try and save them"?, or something like that. Listen to Dr. Faber. Free markets aren't the problem. It's constant government intervention, manipulation, and fiscal mismanagement that has been the problem, and (much) more of the same is going to lead to more destruction. Peter Schiff agrees.
The Japanese deflation of the 1990's sheds some historical perspective on the effects of government stimulation in response to a deflationary depression. Japan's deflation was led by a precipitous drop in real-estate prices and bank insolvencies in what now appears to have been a trial run for what is now a global phenomenon. The Japanese spent trillions to try to stimulate their way out of deflation while leaving interest rates at near 0% for the better part of a decade. How did that work out? According to Bill Bonner, who writes for "The Daily Reckoning":
Housing prices in Japan are now back down to where they were in 1975 – nearly 90% below the late-’80s peak. And stocks? The Nikkei index is back down to where it was a quarter century ago. Stocks sell for half their book value – and they’re still considered too expensive for beaten-down, hyper-fearful Japanese investors. The downturn began in 1990. Over the following 19 years, it did more property damage than the Great Tokyo Fire of ’23 and the Enola Gay combined, wiping out wealth equal to three times the country’s GDP. This was despite interest rates at zero…and a heroic effort at Keynesian stimulation.
If America were to follow Japan’s example, it would have to leave its interest rates near zero for the next decade…and add about $10 TRILLION to its public debt. And if it got the same results, you’ll be able to sell your house in 2026 for the same price you paid in 1992.
It doesn't paint a pretty picture. Marc Faber and Peter Schiff warned of the current economic situation at least five years ago. Perhaps the most frustrating part is that the guys who couldn't see it coming are the ones in charge of getting us out.
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