Asia can grow without trade with US: Faber
Investment Guru Marc Faber says that Asia could easily grow by itself without any trade with the US or with Europe. Asia can have an economic block by itself and grow at significant growth rates because we start with markets that are not yet saturated.
Excerpts from CNBC-TV18’s exclusive interview with Investment Guru Marc Faber:
On the sell-offs in the global markets:
Well, not necessarily, but very clearly over the last twelve months or so, money supply growths and liquidity growths has been de-accelerating and usually this leads to a more unfavourable environment for asset markets and as you know we had very high asset inflation over the last couple of years, within them have been consumer price inflation. But all asset markets whether its real estate or equities or bonds etc, everything has risen in value, and these markets mostly in the US are very stretched and so when liquidity tightens, these markets obviously sell-off.
On the possibility of a sharp depression in the US economy:
Actually you don’t need any investment bank to tell you that there is a slowdown. All you have to do is to look at the performance of consumer stocks, such as Wall-Mart or General Motor or Harley-Davidson etc and their sharp decline, and also their declines and the under performance of financial stocks will tell you that something is not right, that something is wrong, especially in the imbalanced US economy. And of course, there will be a slowdown.
The question is of course, is there a slowdown and is it that deflationary where bonds will rally and interest rates will fall again or is it the worst of all in possible worlds, which I believe will happen if the economies slows down, inflation accelerates and you are moving to some kind of stagflationary environment, which is a total disaster for equities.
On global liquidity:
I wouldn’t bet that if the US markets continues to sell-off, the other Asian markets and other emerging markets would rally or perform well because we are talking about global liquidity and if its shrinking, usually the emerging markets suffer the most for a while. But I take the point that in Asia recession would mean, maybe growth slowing down from, say 6-9% in China to a growth rate of say 3-5% , whereas in the US, recession would mean an absolute decline in GDP.
On the US economy:
Basically the US economy is disaster in the waiting. It’s total catastrophe. It has been driven since 2001 by asset inflation. This is the most dangerous type of inflation because it provides people with the illusion of wealth, when actually no wealth is being created. But illusion of wealth arises from rising debt levels, that lead to rising asset prices, in real estates and on those on rising asset prices that people can make more money and then spend it on cars and other consumer goods, which they don’t really need. So this economy is not sustainable and the penalty would be very high. The penalty will come in two-ways, either the Fed has to continue to tighten and they have to push up Fed fund rate, which is now at 2.75%, but still below the rate of inflation.
Now to push up the Fed fund rate to say 4.5-5%, this would be bad for the asset markets, for real estates, for stocks, but it would probably be good for the dollar. The question is Mr Greenspan has done nothing else for the last 25-years then to print money and each time there was a problem, he has printed more money and so if asset markets begin to decline, I would expect Mr Greenspan actually to stop tightening and then what will happen is that consumer prices will start to rise and inflation will shift out of asset market into consumer prices and that will knock-off the bond market in the US and push up long-term interest rates, and in that scenario the asset markets will obviously also not perform well, infact they will perform worst, then if Greenspan has tightened monetary policy but they can then keep the illusion of wealth a little bit longer going. But the end result will be much worse.
On Asia's growth without trade with US or Europe:
I have the following view, the US is always threatening the Asian countries with protectionist measures, lately in the case of China with textile quotas again and import duties. I would say in principle, the Asian region with 3.6 billion people and countries as diverse in their economic development such as Japan, Bangladesh, India, China, Indonesia, Vietnam and so forth, Asia could easily grow by itself, in other words, without any trade with the US or with Europe.
Of course, the adjustment process would be painful and would take 3-4 years, but in principle, Asia could have an economic block by itself and grow at significant growth rates because we start, with markets that are not yet saturated, we start with very favourable demographic conditions and we start with very dynamic societies.
Rogue
