Dr Doom warns of impending global deflation
He says 'financial mania' will lead to massive bankruptcies, IMF going bust
Reports by Clarissa Tan
[SINGAPORE]
W
orld economies are headed towards a period of global deflation which will see massive bankruptcies, collapsing stock markets and the International Monetary Fund going bust, "doom and gloom" prophet Marc Faber said yesterday.
ÿ <Picture: FILE PHOTO>ÿ Dr Faber: the only bright spot he sees are bonds, which are more attractive than equities in a deflationary environment
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The world is in a period of "financial mania", typified by excesses in financial and foreign exchange markets, that will quickly spiral to deflationary recession as emerging markets like China experience a fall in wages and consumer prices, he said.
"I believe we are in a major financial mania, something like the Inquisition, the crusades, or the witch hunts.
"These are similar. . .there are always the cheerleaders, the charismatic leader, the elements of greed and crowd behaviour," said Dr Faber, who was speaking at a seminar held alongside the 4th Asia-Pacific Derivatives Exhibition.
A symptom of today's "mania", according to the man who has become known as Hongkong's resident doomsday prophet, is that major financial and foreign exchange markets are now disproportionately large compared to "real" economic activity.
"This century has been unusual because we got prices rising along with economic expansion," said Dr Faber.
"The problem is when a period of inflation is followed by deflation, and this is dangerous because of the increase in debt." With huge new markets such as China coming up, Dr Faber feels that the sharp expansion in labour and consumer markets will push prices downwards, triggering "catastrophic effects for world financial markets".
"Even if the IMF helps, it will be just postponing (the global deflation)," said Dr Faber, who does not, anyway, subscribe to the idea that central banks or other organisations should help prop up markets.
One bright spot in all this, he said, is bonds. "In a deflationary environment, bonds are much more attractive than equities. The highest quality bonds significantly outperform lower quality bonds."
But in his worst-case scenario, Dr Faber foresees a collapse of stock markets worldwide, a recession in the US, and many people going bankrupt, including the IMF. "Things will unravel pretty quickly. I think the mistakes have been committed, and it's going to be a hard time." Dr Faber is managing director of Hongkong-based fund management firm Marc Faber Ltd, and publisher of The Gloom, Boom and Doom report. He has been predicting the economic demise of Hongkong since 1988. |
