Markets could be derailed again,
Apr 14, 2010 07:11 EDT
Railway porter-turned-billionaire financier George Soros delivered a stark warning last night that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.
The man who ‘broke’ the Bank of England (and who is still able to earn a cool $3.3 bln in a year) said the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt us towards another crisis unless tough lessons are learned.
Soros, who worked as a porter to pay for his studies at the London School of Economics after emigrating from Hungary, warned us to heed the lesson that modern economics had got it wrong and that markets are not inherently stable.
“The success in bailing out the system on the previous occasion led to a superbubble, except that in 2008 we used the same methods,” he told a meeting hosted by The Economist at the City of London’s modern and impressive Haberdashers’ Hall.
“Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy, we are facing a yet larger bubble.
“We have added to the leverage by replacing private credit with sovereign credit and increasing national debt by a significant amount.”
One crumb of comfort could be the 10-year period between the 1998 Asian crisis and the 2008 credit crisis. If the pattern is repeated, it should at least mean we have another 8 years to go before the next crash…
I own my physical gold and I will never sell it,
says Marc Faber
Author: BI-ME staff Mon April 12, 2010 2:23 pm
INTERNATIONAL. Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, warns that when the next crisis hits, 'you'd see people flee from all paper currencies into precious metals'.
Speaking to 'CNBC Squawk Box Europe' last month, Faber said "we already have now a gold standard created by the market place."
"We have the exchange traded funds that have proliferated and we have more and more physical buying of gold," he added.
The famed investor pointed out that between 2001 and 2008, gold outperformed bonds and stocks, but starting with 2009 stocks outperformed. "This means investors must own gold because generally retail investors cannot move in and out of different assets like institutional investors".
Investors should avoid bonds and cash over the next 10 years and choose stocks instead, he said, but warned that printing money will lead to an economic collapse in the end.
"Before we have the final collapse that will be a deflationary collapse, we will have more and more money printing."
“I think interest rates forever in the US will be at zero. By zero I mean below the rate of inflation," Faber told CNBC.
In a recent interview with a German website Faber said it is impossible for the American government to fulfill its obligations because the current deficit is already US$1.6 trillion this year.
The total US debt is already 375% of the GDP, excluding medicaid medicare and social security. If you include these, the national debt is at 600% of the GDP, he said.
The legendary investor reiterared his belief that eventually there will be a big bust and then the whole credit expansion will come to an end. But before that happens, governments will continue printing money which in time will lead to Zimbabwe-style hyperinflation, and the economy will stop responding to stimulus.