Global Critics Actually Should Thank the Fed: Marc Faber
Foreign leaders ought to be thanking the Federal Reserve for its weak-dollar policies even as the central bank is coming under withering global criticism, "Dr. Doom" Marc Faber told CNBC.
With pressure intensifying on Fed Chairman Ben Bernanke after the central bank last week announced it was buying another $600 billion in Treasurysin an effort to further drive down interest rates, Faber said it is that very policy that has allowed emerging markets to grow.
"US monetary policies have been very good for Asia, specifically for China because it fostered industrial production growth in China, employment growth, wage increases, domestic consumption, increased demand for raw materials," said the author of the Gloom, Boom & Doom report. "That then lifted commodities prices. For that, actually the developing world, the emerging economies including China, Vietnam, Brazil and so forth should all send a 'thank you' note to Mr. Bernanke."
Critics worry that the Fed's efforts, often referred to as "quantitative easing," are debasing the US dollar and could cause a global trade war. Cheap currency makes exports less expensive, a goal the US is pursuing as it shoulders a $46 billion trade deficit.
Still, Faber said the central bank is risking the creation of another asset bubble similar to the technology bubble that burst in the past decade and the real estate bubble that led to the financial system collapse in 2008 and 2009.
"Excessive liquidity and dropping dollar bills onto the United States from helicopters like Mr. Ben Bernanke suggested—the problem with that is he doesn't know where the money will flow," he said. "In this case, the excess liquidity flows into emerging economies and precious metals, and new bubbles are building up that at some point in the future will burst.
"Then you will have another problem on your hands the way you had a problem when the Nasdaq bubble burst and the housing bubble burst."
The Fed has taken its present course as Bernanke has warned about the perils of deflation and as unemployment remains stubbornly high and the housing market has yet to recover.
Mortgage rates are at a record low around 4.23 percent and US companies are carrying about $2 trillion on their balance sheets, yet the economy remains mired in low growth.
"He really is a janitor in this particular circumstance," Frank Berlage, of Multilateral Partners Global Advisory Group, said of Bernanke. "He is cleaning up the mess from Congress, the state Legislatures, Mr. (Alan) Greenspan.
"I think he gets a little too much criticism, because he realizes without saving the real estate market we're going to see the destruction of the banking industry and with a destruction of the banking industry we're going to see a decline in the money supply similar to 1929...I don't think he wants inflation. I just don't think he sees an alternative."