These Bailouts Won't Work Either: Dr. Doom
The new bank bailouts are not likely to work because they are run by the same people who prolonged the economic agony by throwing money at weak companies rather than allowing them to fail and encouraging the strong ones, Marc Faber, the publisher of the Gloom, Doom and Boom Report, told CNBC Monday.
Britain threw its troubled banks another multi-billion pound lifeline Monday by allowing them to insure against steep losses and guaranteeing their debt, while an adviser for U.S. President Elect Barack Obama said the rest of the TART money will be used to clean out bad assets from the financial system.
"The financial crisis has occurred because of government interventions," Faber told "Squawk Box Europe."
"Specifically central banks, or specifically the US Fed, by keeping interest rates artificially low for too long, they created a huge leverage in the system. So the people who created the problem now are in charge to bail out the system and that's why I am very skeptical that it would work," he added.
The governments' efforts to pour money into certain businesses to keep them afloat while letting others fail were arbitrary and increased volatility, he said.
"I think it was good that Lehman went bankrupt but I can't see any reason why AIG has been supported. Either you bail out everybody or nobody," said Faber.
"The contractions actually serve to build for the future growth, because the weak competitors are eliminated. If you support the weak competitors you essentially penalize the strong competitors and therefore I am very much against these bailout packages."
There is a chance that the second half of this year may be worse than the first half, but markets, which were oversold in November last year, may go a little higher, according to Faber.
In the credit markets, things seem to have improved "but we have to be aware that there is a danger that one day, government credit, government bonds are going to be downgraded. I think that may be the shoe to drop some time in 2009 or maybe next year," he said.
(Watch the first part of the CNBC interview with Marc Faber above and the second part here >>>).
Investors counting on the fact that stock prices are very low for long-term growth should bear in mind the Japan lesson, where prices are virtually at the same level they were in 1981, Faber noted.
Commodities may be a better play as some time, when the global economy picks up, prices will rise because investment in new exploration or mining has all but stopped, he said.
"I have shares in Asia, mining stock, exploration companies, physical gold," Faber said.
"As far as currencies are concerned, I think the dollar is a disastrous currency but the others are even worse. I am leaning more towards the view that the dollar could strengthen even more."