Investment guru Marc Faber says the financial system must be cleansed to save capitalism. "I think the final low in markets will occur when the system is cleaned out," Faber told CNBC. Unless that happens, "the way communism collapsed, capitalism will collapse," he says. "The best way to deal with any economic problem is to let the market work it through." He sees the Federal Reserve and other central banks continuing to print piles of money. And the outcome won't be pretty. "The U.S. government for sure will go bust," Faber says. "That I guarantee you. Not tomorrow, but it will go bust." He isn't optimistic for the fate of the global economy either. "I don't think that the global economy will recover anytime soon," he says. "And we have to define what a recovery is." If economic output drops far enough, a mere revival of inventories can push growth up a bit, creating a mild rebound, Faber says. "I take 2006 and early 2007 as the peak of prosperity in this long cycle, and I don't think we're going back there anytime soon." Many other experts share Faber's bearish view of the global economy. – Money News
Dominant Social Theme: Capitalism faces many challenges.
Free-Market Analysis: OK … we can't fault Marc Faber who is most certainly a free-market oriented investor and money manager. But the use of the word capitalism to describe the current system implies unfettered capital seeking its best use. To describe the Western economic system this way is to lose track of what has occurred and what is evolving. It is a mixed system at best and – during this latest crisis – has verged increasingly on command-and-control both within the EU and in America.
Of course, those who bring you this electronic paper do not believe that governmental command-and-control works well. As Ludwig von Mises showed us, mixed economies eventually tend toward more and more centralization. It is an almost inevitable outcome – unless citizens fight hard against the trend.
The West is far from a free-market system at this point. The economic system is over-controlled by governments, and the monetary elites behind them. These monetary elites, in fact, create and market the dominant social themes that most people utilize to interpret their world – and through these themes government derives leverage. They are fairly easy to discern, these memes. They are actuated by money. The idea is to create scarcity and then to profit from it. If you can convince people, for instance, that carbon dioxide is poisoning the earth, then you are in a position to sell large-scale solutions to a problem that you, and only you, have defined. More wealth for the wealthy, and more control.
The memes marketed by the monetary elite usually deal with disaster (see the book posted on this site, "High Alert," for more). Peak oil, environmental difficulties, terrorist threats, health scares, these all drain optimism and human action and substitute pessimism, inaction and self doubt. Once this state of affairs is achieved people are far more suggestible and malleable. They will tend to do as they are told and will not be inclined to question authority. In fact, many will purchase the solutions that are marketed to them, and will even see such participation as an affirmation of morality.
It is not easy to accept that this is the way the world works. To do so, one must accept that people's brains are a little like computers. The initial operating system is programmed first in the formative years and seems very difficult to reconfigure later on. This is why so many people can acquire new skills when they are older while belief systems remain consistent throughout life. To change one's operating system (how one fundamentally views the world) is indeed difficult. One must be motivated to seek out new points of view, and then one must study them and be willing to accept the insights provided. This is not pleasant.
In addition to reading and thinking, one must redefine one's vocabulary and accept that popular meanings may not be accurate. One such word is "capitalism." To describe the Western economic system as "capitalistic," and to use the term interchangeably with "free market," (as many do) is not right. The West's system, with its monetary controls, government trading agreements, high taxes and regulatory bureaucracy is not a free-market system. It is one increasingly based on government command-and-control.
When someone like Faber user the word "capitalism" and predicts its failure our brains seize up a little. The term comes from Marx. And it is therefore a sentiment that is difficult to process. Is Faber upset by the idea that capitalism might fail? The capitalism we have now? The current capitalism is based on paper money stimulation that brings a good deal of misery every few decades. With apologies to Faber, we say, "let capitalism fail" – and bring us a real free market.