Wow, just stumbled on this interview from back in April. Brilliant explanation of the state of affairs from Marc Faber, as usual. What really perked my ears was his rebuttal of the anchor's attempt to make a populist case for inflation... Faber swats this down with amazingly few words that really identify the root issue. We live in the absurdist world that Bastiat described as "plunder of all by all" and the poor masses are constantly trying to vote themselves the wealth of the Elites. The Elites, in turn, use inflation as a weapon against the ignorant masses to get back at them. If Faber were an academic, I would say he is Rothbard's true heir...
Clayton -
I know this is divergent from your point of focus, but it struck me when he said "I thinkc maybe gold is cheaper today [flirting with $1500] than it was in 1999 when it was wat $252"...I immediately wondered how many people would think he was mentally handicapped.
He meant adjusted for inflation.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
I like Faber's no-nonsense approach. The Establishment talking-heads always treat the exceptional as unthinkable. "War? *gasp!* You mean, they'd purposely start a war to divert people's attention from economic woes! That's a conspiracy theory!" If you listen to the whole interview, the female anchor drops the 'C' word on him. He does a nice bob & weave and easily dodges it but it just cracks me up.
I watched part of the interview and how lobotomised does that female presenter want to be: after hearing a sound argument all she can respond with is "duh that sounds like a conspiracy" ie cannot possibly be true.
The mental blocks that are erected in people's minds are ridiculous.
Btw does any one know any books which take relatively uncontraversial historical events and point out it was a result of a conspiracy (purposeful action)? If such a book does not exist its presence may aid the population to realise conspiracies happened frequently historical which would lead to the conclusion the government might still be doing it.
The atoms tell the atoms so, for I never was or will but atoms forevermore be.
Yours sincerely,
Physiocrat
The super-rich love class warfare, all those economic illiterates who want to "soak the rich" are their useful idiots.
And state schooling is definitely the most potent tool in the suppression of the poor, it keeps them believing the myths that benefit the rich.
Yeah I found her little comment on public schools hilariously out-of-place and the way Faber ignores it to be not unlike the way adults ignore the off-topic prattle of children while having a serious conversation with each other.
Surely though the rich suffer more from inflation than the poor?
I would have thought the best place to be in, when serious inflation hits, is in debt. If you are millionaire and serious inflation sets in, not even hyper inflation or ultra hyper inflation, just $100 for a loaf of bread inflation. The millionaires lose way more value than the poor.
Coming from the worlds most poorest student economist, (me), I don't mind being in debt as i am confident that eventually inflation will make the debt less of an issue than it currently is. As long as I can keep the debt manageable and if possible on 0% interest. Then I am in a better position than someone with dollars in savings. But sure I would rather be holding real gold than in debt with the banks. But even with my relative success for my age, I am struggling to live a reasonable standard of living with my salary without taking on debt. My debt is also not maxed out, so if I lose my job and can't get another one, because the economy tanks. I still have some available. Rather spend the banks money than my own, then have inflation devalue the debt.
Is that the completely wrong way to look at it?
Jack Roberts: Surely though the rich suffer more from inflation than the poor?
You're confusing upper-middle class (business class) with the Elites.
Most of the wealth of the wealthy is tied up in real assets - stocks, bonds, real estate, and so on. Only a portion of it is kept in liquid cash. And, as Faber points out, the wealthy can move their assets overseas if worse comes to worst. For the lower-middle class and poor, the exact opposite holds, all their income goes right out the door on a constnatly inflating cost-of-living and whatever cash they have left over at the end of the month is not enough to invest and must be held 100% liquid. They cannot afford to move their assets or themselves out of the way. They bear the full brunt of inflation without escape.
Coming from the worlds most poorest student economist, (me), I don't mind being in debt as i am confident that eventually inflation will make the debt less of an issue than it currently is. As long as I can keep the debt manageable and if possible on 0% interest. Then I am in a better position than someone with dollars in savings.
If you can leverage yourself on assets which grow at a rate that is better than or equal to inflation, this is a profitable strategy. However, if you are net in debt (i.e. living off debt), you're still losing out in the long run.
But sure I would rather be holding real gold than in debt with the banks. But even with my relative success for my age, I am struggling to live a reasonable standard of living with my salary without taking on debt. My debt is also not maxed out, so if I lose my job and can't get another one, because the economy tanks. I still have some available. Rather spend the banks money than my own, then have inflation devalue the debt. Is that the completely wrong way to look at it?
My best friend taught me a lesson several times when we were young... never take another man's bet. You're playing their game. They wrote the rules. They invented the game. They're not playing to lose. Why are you playing?
Yes, it is important to distinguish upper middle class and super rich. Most of us, including very rich businessmen, want more income. But the hyper rich do not care about losing some income, they already own the money supply, conveniently monopolized. It's not like the super rich need money to buy groceries. For them money is a means to an end - power. Those who have the most may lose the most money through inflation and downturns, but it is fine to lose most of your money as long as everyone loses more. Then you are are relatively richer. Generally, downturns are an opportunity for the rich to get richer, because everybody else is out of money and has to sell assets to those who have the cash. Business cycles, i.e. higher stage corporations going bankrupt, are a boon to elites with freshly printed money.
It's not so much that their wealth is liquid and they can move it out of country. That may to some degree apply to very rich businessmen, but super rich elites don't care how much they lose in the short term, they already own the whole monetary system and could print up as much as they want. The poor may have their debt reduced by inflation. But so what, inflation and fractional reserve banking is the reason they are in debt in the first place, instead of owning assets. The economic distortions and the wealth destruction is what keeps them poor. What good is money if you can't buy anything?
Daniel Muffinburg:He meant adjusted for inflation.
@Nero: It may be a bit of an over-dramatization but I've come to the conclusion that the Molyneux-esque view of the world as a farm - a human farm - is less false than it is true. The powerful, or the ruling class, aka the Elites or the Establishment, are, as you noted, unencumbered by the constraints of money since they can get more any time they please. They do not actually "pay" for anything, since the production from which their decisions are funded was never their own to begin with. I do believe that the power of the ruling class has been dissipating or spreading over the last few centuries. By this I mean that the gap between the upper-middle class and the Elites has been steadily shrinking as fresh ranks of noveau riche are being constantly replenished faster than the Elites can trap them, bankrupt them, imprision them, take them into the fold or simply slaughter them. I believe this is what is driving the spread of the State into every industry - notably, the industry of banking. In order to maintain power, the State can no longer content itself with shaking a spear at its subjects. It must pay medicine men to distract and awe them, it must pay shysters to cheat and swindle them, it must pay minders to nanny and regiment every detail of their lives and it must pay professional bleeding-hearts to pretend to give a shit about them. So, inflation is a counter-attack from the Elites against the masses, particularly the upwardly mobile merchant class. But, as always, it is the very poor who get it the worst.
A few things I don't understand.
1. He says the top 5 to ten percent benefit from inflation. How did he arrive at these numbers?
2. Mises writes, I believe, that the earlier one is in the chain of people getting the money, the better. Are the top 5 to ten percent always earlier in the chain than the poor? I see a counterexample in welfare and unemployment checks. The chain is Fed to US govt to welfare recipient.
3. He says that the rich benefit from inflation because the price of their assets goes up. Is he saying that the stockholders in the Weimar Republic or the Zimbabwe stock exchange had it good?
4. Is not the gain in nominal prices offset by the loss of purchasing power of the currency?
Bottom line, I think he missed the boat very badly. The printer of the money benefits, and the early recipients of it, which is not the same as the top 5 to ten percent of the population. And the benefits he attributes to inflation for the wealthy are illusory.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Smiling Dave: A few things I don't understand. 1. He says the top 5 to ten percent benefit from inflation. How did he arrive at these numbers? 2. Mises writes, I believe, that the earlier one is in the chain of people getting the money, the better. Are the top 5 to ten percent always earlier in the chain than the poor? I see a counterexample in welfare and unemployment checks. The chain is Fed to US govt to welfare recipient. 3. He says that the rich benefit from inflation because the price of their assets goes up. Is he saying that the stockholders in the Weimar Republic or the Zimbabwe stock exchange had it good? 4. Is not the gain in nominal prices offset by the loss of purchasing power of the currency? Bottom line, I think he missed the boat very badly. The printer of the money benefits, and the early recipients of it, which is not the same as the top 5 to ten percent of the population. And the benefits he attributes to inflation for the wealthy are illusory.
1) I'm assuming guesstimation
2) That's a decent point. I actually haven't much looked enough into it, but my guess would be that if you follow the math, the poor get such a small percentage of the new money and it is divided among so many people, that the individuals in that group are simply not able to acquire enough real goods at the lower prices to actually end up better off...in other words, my guess is that the individuals still end up behind, so the group is still behind in the deal.
3) Kind of, yeah.
4) Not exactly. Especially if you are a debtor. Remember it is the wealthy who use the most leverage. The most debt a poorer person could get into would be maybe for a car, or a house at the most. And they'll probably default on the loan (and walk away or have the item repossessed) before the benefit of an inflated currency begins to pay off and they find it easier to make the payments. However, wealthier individuals (and especially individuals who pool their funds together and form entities) are able to leverage to incredible levels...and remember, when you are borrowing, you are certainly getting to spend the money before the creditor (as that's what the whole act of borrowing is). So as a debtor you are necessarily in front of the creditors in the market of purchasing real goods...therefore you have acquired the real assets already...and as prices rise it is the creditor who is losing. And who has the largest percentage of their savings in cash? The poor.
This is all relevant because you have to remember what Mises said, prices do not respond equally and proportionally across the market in the same time. So even if the currency may have lost some purchasing power overall, the individual who acquired assets at the lower prices is in a position to take advantage of this discrepancy between the change in prices of different sets of goods.
For example, suppose you borrowed $100, and used it to purchase 10 widgets. Of course, if the price of the widgets goes up you cannot sell the widgets you have and somehow buy more widgets. It would be the same as if the price had just stayed the same. So yes, there is an offset. But an increase in the price of widgets does not necessarily mean an increase in the price of apples (and even if apples do see an increase, it doesn't have to be an equivalent one). So because you were able to acquire the widgets before the price went up, there is still arbitrage opportunity of which you can take advantage that will put you on net ahead of where you were before. And because of the position wealthier people are in, they are virtually the only ones who are able to take advantage of this. They are the only ones able to acquire such a large amount of debt in the first place, they are the ones who are actually in a position to service the debt for a long enough time to see a benefit from currency devaluation, and they are the ones who have the knowledge to generate profit from arbitrage.
So while it may be true that on a micro level currency devaluation offsets nominal price increases of specific goods, it is not necessarily true that wealthier individuals don't come out in a better place thanks to the fraud taking place.
It's easy to follow if you recognize what the different classes do with their money. Poorer individuals are most likely going to consume the majority of their income, if not all of it. Any amount that they do save will more than likely be in liquid currency. The wealthier an individual is, the larger and larger percentage of his wealth is housed in either appreciating assets, or at the very least, assets that retain a decent amount of value. This fact alone is enough to allow the wealthy to be essentially not affected by a currency devaluation, simply because such a small percentage of their wealth is in the form of the item that is losing value (i.e. the currency). This is the reason Friedman said the most effective protection against inflation is "high living."
But then, when you throw on top of that the position the wealthy are in, to participate in the financial markets—again, through their connections, their knowledge, and the sheer amount of funds they have available to invest...which that alone gets you into markets you otherwise wouldn't be able to play in—it is not hard to see how the wealthy do not have a very difficult time coming out ahead due to a currency devaluation. They simply have the most options.
As for your bottom line, I pretty much agree.
Smiling Dave: A few things I don't understand. 1. He says the top 5 to ten percent benefit from inflation. How did he arrive at these numbers?
It's a poetic number. The point is "a tiny percentage at the top benefit most." This is certainly true.
And where do those checks get spent? Retail stores, right? Who owns retail stores? Poor people?
Medicare checks go directly to the medical/pharma establishment. Defense spending goes directly to defense corporations. Interest on bonds purchased by foreign and domestic financial establishments goes directly to those establishments. The first recipients of freshly minted dollars are the Elites, the top few percent of wealth-holders in the US and other countries.
The point is that the Elites have the option to divest themselves of cash by purchasing real assets or moving their accounts overseas, so they see no material losses from the localized inflation. It is those who are constrained to using the debasing currency who are hurt by the inflation.
Well, it's the destruction of the division of labor, consumption of capital, and breakdown of the socialized infrastructure that results in the loss of value of even real assets. However, inflation is not even the primary cause of these ills. Every form of economic quackery deployed by States upon their hapless subjects plays its role in this. The worst-case scenario, which Faber discusses, is open war. This is how failling States decimate their populations after they cannot conceal their mistakes any longer.
Faber is not an academic or a theoretician. His mannerisms should make that clear but if you didn't pick up on the body-language, I recommend you go listen to any of his lectures available on YouTube, rather than these news interviews where he (with forewarning) has to compress rather complex ideas into short sound-bytes. He analyzes the market from a businessman's point-of-view and his analyses are closely in line with Austrian theory. He doesn't start from Robinson Crusoe economies because he doesn't need that level of analysis to choose where to invest his cash. Faber is a really remarkable guy.