Marc Faber is one of the very successful investors on earth. He recently explained his view on the monetary policies of the developed regions in the world. Obviously he is no fan of the Keynesian way of thinking which is applied by the central banks in the developed regions.

The Keynesian policy considers easy money as a way out of economic recession and deflation. They argue that money creation smoothens out the business cycle. In his presentation, Marc Faber demonstrates that these kind of interventions achieve exactly the opposite: they make the business cycles much more violent, create extreme fluctuations in economic activity and result in far more financial volatility. In his opinion, the essential problem is that the Keynesian way of thinking tries to solve long term structural problems with short term fixes, with an emphasis to create bubbles to help the economy. However, Mr Faber notes that bubbles usually hurt the majority of market participants.

Based on the US Fed philosophy you can’t identify bubbles, but if they burst you can take measures to support asset prices by flooding the markets with liquidity (read: by “dropping dollar bills from an helicopter” in order to prevent deflation). In line with that way of thinking, the Fed has slashed interest rates and created liquidity over the last 30 years on a continuing basis.

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