Marc Faber and Mish on Inflation, Deflation, Doom and the End of Civilization

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Gloom Boom
& Doom Report publisher Marc
Faber
and economic analyst Mike
“Mish” Shedlock
join Yahoo’s Tech Ticker on March
12, 2010 to discuss the global economy, where we’re headed
and the possibility of the “end of civilization.”
(Videos follow excerpts and commentary)

Marc Faber
and Mish hold differing views on what we can expect in terms of
dollar purchasing power going forward:

Marc
Faber:

The issue
here is quite irrelevant, whether we have deflation first or inflation
first. Eventually we’ll have much higher inflation rates,
because if deflation comes first they’re going to have even
more stimulus packages and even more printing. And as you know,
many leading economists, they call for additional stimulus which
I think is ludicrous, it’s crazy to even suggest additional
stimulus. But, that is what the Keynesians believe is the right
thing to do and that will bankrupt Western governments, not just
in the US, but everywhere.

Mish:

I think
he’s wrong. One thing he’s right about is that the threats
from Congress here, the stimulus packages. Yet, when I look at
this I see what state governors are doing, I see what mayors of
some cities are doing, and I am also seeing out of Congress a
reluctance to pass more stimulus bills. Look at the last unemployment
extension – it was held up for a week by Bunning – where
they didn’t even want to extend unemployment benefits. There’s
very little room here and very little sentiment here for Congress
to go out and do these same massive kinds of programs. Also, I
think that these guys think that they fixed the problem. That
they think we’re on this road to this miraculous recovery
and jobs are coming just down the pike.

Both Faber
and Shedlock make excellent points here, and what the inflation/deflation
debate seems to boil down to is what Congress, the Fed and the administration
will do going forward.

It is clear
that we are currently in a broader deflationary trend. This is evidenced
by what happened with the stock market crash, including commodity
prices like oil, copper and even gold, in late 2008 through early
2009. Credit collapsed during this time period – across the
board. Essentially, bad debts were being cleared out of the system,
just as nature intended. In March of 2009, the Fed and Congress
began pumping trillions of dollars into the system in the form of
bailouts, stimulus packages, and buyer incentives. This put a floor
on the deflationary impact across all asset classes and led to a
manufactured rise in those asset classes (arguably inflation) from
March 2009 through today.

If the powers
that be were to pull all stimulus and monetary expansion right now,
it is evident what would happen to all asset classes, save precious
metals; a re-collapse in values. Thus, the future is going to be
dependent on what Congress and the Fed do going forward.

As Mish suggested,
our elected representatives may very well believe that we have recovered
and it’s smooth sailing going forward. This is one major reason
we may be seeing the Fed and Congress pulling back on more talk
of stimulus and spending our way out of recession – because
it is now over!

If they are
wrong about recovery, which we strongly believe is the case, then
the sentiment in our government and quasi-government institutions
will change. As we saw in late 2008, when the SHTF people get very
irrational, they are no longer driven by logic, but rather, fear.
When the system was on “the brink,” as suggested by then
Secretary of Treasury Henry Paulson, Congress acted out of fear
of the potential for “martial
law” across America
if the system collapsed, and thus the
trillions in spending was justified.

Never let a
good crisis go to waste is the motto of our present administration.
If we were to see a relapse in the housing meltdown and a crash
in stock markets, those in charge may very well respond irrationally
and do what they did in 2008. Keynesians believe, after all, that
the reason the Great Depression of the 1930’s wasn’t prevented
is because we failed to spend enough money. They will not make the
same mistake in this crisis.

We, therefore,
agree with Marc Faber’s long-term position in terms of the
deflation/inflation debate. What happens in the short-term, with
irrational responses coming from the government, our financial institutions
and investors, is really irrelevant, as the long-term trend of dollar
destruction is still intact. Prepare for inflation, maybe not today,
or tomorrow, or even this year, but five years from now, expect
a significant rise in your cost of living, especially related to
commodity-driven prices like gas, food and electricity. And, as
has been the case since the Fed’s creation in 1913, do not
expect wages to keep up with this trend of rising prices, meaning
that as prices in essential goods go up, your wages will not keep
up, meaning that over time, you will get poorer.

In the end,
it seems Dr. Faber and Mr. Shedlock agree on the most important
aspect of this debate, that we are not in a recovery in any sense
of the word:

Mish:
They think we’ve turned the corner. I don’t think we’ve
turned the corner. I think more damage is coming.

Faber:
I think it’s beyond repair. It’s too late.

Rather than
leaving you with the gloom and doom, here are some thoughts from
Faber and Shedlock on how you can prepare for the destruction to
come:

Faber:
My belief is that you have to accumulate, slowly, some gold every
month. Put some savings into gold. If I were living in the US
and I couldn’t leave the US, I would build up some assets
outside the United States. I would own some property outside of
major cities because I believe that the major cities are becoming
very dangerous in terms of modern warfare, so you have to become
self-sufficient.

Mish:
I think the day of reckoning has arrived. The question is how
long it takes to play out. Certainly wages in the United States
have to drop and wages in Asia have to rise. I think we have the
first generation here in the United States where our kids are
going to be less affluent than their parents. It has to happen
here right now.

Learning to
do more with less is the new paradigm shift in America. Out-of-control
spending by consumers will stop, either voluntarily or by force
as credit, jobs and wages continue to contract. This negative feedback
loop will continue to spiral downward as our economy essentially
becomes unhinged.

For those losing
their jobs or making less money, growing your own food in a micro-garden
in suburbia, or repairing kids’ clothing, or fixing your own
car will be just some of the skills that are necessary going forward.

The best investment
you can make for what is to come is in yourself.

Marc
Faber: Don’t Expect Another Crash…Bernanke Won’t Allow It (Part
1 of 3)

The
Great Inflation / Deflation Debate (Part 2 of 3):

Faber
and Mish: We’re Doomed and Washington Can’t Do Anything About It
(Part 3 of 3):

Reprinted
from SHTF Plan.

April
6, 2010

Mac
Slavo [send him mail] is a
small business owner and independent investor.

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