Early in this interview Marc Faber offered:
”..so the whole world goes into a vicious down cycle economically…”
Later, he discussed market solutions versus government intervention. He also debunked an investment myth supported (misnomer alert) by fiat currency alone:
“In general, I believe that market-led solutions are better than government interventions, and there is no evidence that government interventions bring any improvement.
“In fact if you look at the Japanese government post 1989, they’ve intervened. They created deficits that are much larger than what the US will create, and they flushed the system with liquidity with interest rates at zero.
“And what is the result? The stock market is at 9,000 compared to 39,000 in 1989.
“Btw, somebody just said before that stocks over a twenty-year period always go up. But that is only correct maybe in US dollars because the US dollar goes down. I can give you X examples where stocks peaked out and never again made a new high.”
After the hosts briefly attempted levity, Mr. Faber continued:
“I think, with the global economy, people will say to you, “Were you born before 2007 or after 2007?“ Because 2007 is like 1929 or World War II, a very important year, the year when the credit bubble burst. And when the credit bubble burst, the economic implications are very negative.”
Thank you, Bubble Barons in Congress, the White House, and The Federal Reserve!
(For prior posts featuring Mr. Faber, see here, here, and here.)
![“Clinton Urges China to Keep Buying U.S. Treasury Securities” via BB:
Secretary of State Hillary Clinton urged China to continue buying U.S. Treasury bonds to help finance President Barack Obama’s stimulus plan, saying “we are truly going to rise or fall together.”
“Our economies are so intertwined,” Clinton said in an interview today in Beijing with Shanghai-based Dragon Television. “It would not be in China’s interest” if the U.S. were unable to finance deficit spending to stimulate its stalled economy.
The U.S. is the single largest buyer of the exports that drive growth in China, the world’s third-largest economy. China in turn invests surplus earnings from shipments of goods such as toys, clothing and steel primarily in Treasury securities, making it the world’s largest holder of U.S. government debt at the end of last year with $696.2 billion.
[photo source]](http://29.media.tumblr.com/Anhohk1sak9xeasnfrPuSFg8o1_500.jpg)
![Japan and China are coming to terms with their over-exposure to the US, the importance of the US, and also their excellent negotiating position relative to the US, via the WP:
Japan:
“The reason why we stress the importance of stability is that the amount which we have in U.S. assets is so enormous,” said [Hidehiko] Sogano, [an associate finance director at the Bank of Japan], referring to the roughly $860 billion of the bank’s $1 trillion in reserves that are in U.S. investments, mostly Treasury bonds.
Just how deeply Japan is enmeshed in troubled loans in the United States became significantly more clear Friday, when Finance Minister Bunmei Ibuki conceded at a parliamentary hearing that the government and central bank hold about $74.5 billion in debt issued by mortgage finance giants Fannie Mae and Freddie Mac, recently bailed out by the U.S. government.
Besides injecting the equivalent of about $96 billion in four days into money markets for overnight loans, the bank has gone into the business of making dollar loans. It joined with four other central banks in a $180 billion currency swap with the Federal Reserve and will use its $60 billion share to supply dollars to local and foreign institutions.
Sogano said that the Bank of Japan feels that U.S. market turmoil, even if it continues for months or years, will not alter the central place the United States occupies in global finance and will not undermine the willingness of the Bank of Japan to invest in the United States. “There will be no change because we quite understand the importance of the U.S. market and the stability of the dollar,” he said.
China:
China has a direct interest in the U.S. crisis. It is estimated to hold a fifth of its currency reserves — as much as $400 billion — in Fannie Mae and Freddie Mac debt.
In addition, its banks have billions of dollars worth of exposure to the American International Group, Merrill Lynch, Lehman Brothers and other companies in crisis. The Industrial and Commercial Bank of China, for example, has $151 million in bonds issued or linked to Lehman; China Merchants Bank has $70 million of Lehman bonds; and the Bank of China has $75.62 million of Lehman bonds.
As U.S. officials were deciding in August whether to take over Fannie Mae and Freddie Mac, the Treasury Department held informal talks with officials from the People’s Bank of China, the country’s central bank. At that time, investors in Fannie Mae and Freddie Mac in China were dramatically reducing their holdings. The U.S. side told China that a cash infusion was in the works; China said that it expected the U.S. government to “do whatever is necessary” to protect the investments.
Andy Xie, an independent economist who was formerly Morgan Stanley’s chief Asia economist, said the United States needs to accept that a large amount of U.S. assets must be transferred to other countries’ ownership. “If the U.S. is not willing to accept that,” Xie said, “they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown.”
Companies in the United States and in Europe are already reaching out to Chinese investors. Morgan Stanley chief executive John Mack has been in contact with the China Investment Corp., the sovereign wealth fund that manages $200 billion, and with China’s Citic Group. La Compagnie Financière Edmond de Rothschild on Thursday announced that it had sold a 20 percent, $340 million stake to Bank of China. It’s unclear how Chinese investors will respond to the overtures, especially given that their biggest investment in Wall Street to date, CIC’s investment in asset manager Blackstone Group, has turned out to be a disaster — its investment has lost half its value.
[photo source]](http://26.media.tumblr.com/Anhohk1saepxyicosdwat9Vxo1_400.jpg)
