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'WHITE ELEPHANTS' AND OTHER MONETARY AILMENTS
By Marc Faber
There is a fundamental difference between a"real economy"
and a"financial economy." Understanding it could help you
navigate the stormy decade that no doubt lies ahead.
Ignoring the difference could be disastrous.
In a"real economy," the debt and equity markets as a
percentage of GDP are small and are principally designed to
channel savings into investments. In a"financial" or
"monetary-driven economy," the capital market is far larger
than GDP and not only channels savings into investments but
also continuously into colossal speculative bubbles.
This isn't to say that bubbles don't occur in a real
economy, but they are infrequent and usually small compared
to the size of the total economy. So, when these bubbles
burst, they tend to inflict only limited damage on the
economy. In a financial economy, however, investment manias
and stock market bubbles are so large that, when they
burst, considerable economic damage follows.
Every investment bubble brings with it some major economic
benefits. A bubble generally leads either to a quantum jump
in the rate of progress or to rising production capacities,
which, once the bubble bursts, drive down prices and allow
more consumers to benefit from the increased supplies. In
the 19th century, for example, the canal and railroad booms
led to far lower transportation costs, from which the
economy greatly benefited. The 1920s' and 1990s'
innovation-driven booms led to significant capacity
expansions and productivity improvements, which in the
latter boom drove down the prices of new products such as
PCs, cellular phones, servers, and so on, and made them
affordable to millions of additional consumers.
My view is that capital spending booms like these, which
inevitably lead to minor or major investment manias, are a
necessary and integral part of the capitalistic system.
They drive progress and development, lower production
costs, and increase productivity, even if there is
inevitably some pain in the bust that follows every boom.
The point is, however, that in the real economy (with a
small capital market), bubbles tend to be contained by the
availability of savings and credit...whereas in the
financial economy (with a disproportionately large capital
market, compared to the economy), the unlimited
availability of credit leads to speculative bubbles, which
get totally out of hand.
In other words, whereas every bubble will create some
"white elephant" investments - investments that don't make
any economic sense under any circumstances - in financial
economies' bubbles, the quantity and aggregate size of
"white elephant" investments is of such a colossal
magnitude that the economic benefits arising from every
investment boom can be more than offset by the money and
wealth destruction that arise during the bust.
This is so because, in a financial economy, far too much
speculative and leveraged capital becomes immobilised in
totally unproductive"white elephant" investments. In this
respect, I should like to point out that in the early
1980s, the US resembled far more a"real economy" than at
the present, which I would definitely characterise as a
"financial economy". In 1981, stock market capitalisation
as a percentage of GDP was less than 40% and total credit
market debt as a percentage of GDP was 130%. By contrast,
at present, the stock market capitalization and total
credit market debt have risen to more than 100% and 300% of
GDP, respectively.
It is not wise to base today's monetary machinations on
those performed in the early '80s. Consider the tight
monetary policies of former Fed chief Paul Volcker. In the
1970s, the rate of inflation accelerated - partly because
of easy monetary policies, partly because of genuine
shortages in a number of commodity markets, and partly
because OPEC successfully managed to squeeze up oil prices.
But by the late 1970s, the rise in commodity prices led to
additional supplies and several commodities began to
decline in price even before Paul Volcker tightened
monetary conditions.
At the same time, the U.S. consumption boom engineered by
Ronald Reagan in the early 1980s (driven by exploding
budget deficits) began to attract a growing volume of cheap
Asian imports, first from Japan, Taiwan, and South Korea,
and then, in the late 1980s, also from China.
I would argue that even if Paul Volcker hadn't pursued an
active monetary policy designed to curb inflation by
pushing up interest rates dramatically in 1980/81, the rate
of inflation around the world would have slowed down very
considerably in the course of the 1980s, as commodity
markets became glutted and highly competitive imports from
Asia and Mexico began to put pressure on consumer product
prices in the U.S.. So, with or without Paul Volcker's
tight monetary policies, disinflation in the 1980s would
have followed the highly inflationary 1970s.
Nevertheless, after the 1980 monetary experiment, many
people - especially Mr. Greenspan - began to believe that
an active monetary policy could steer economic activity on
a non-inflationary steady growth course and eliminate
inflationary pressures through tight monetary policies, and
cyclical and structural economic downturns through easing
moves! This belief in the omnipotence of central banks was
further enhanced by the easing moves in 1990/91, which were
implemented to save the banking system and the Savings &
Loan Associations, by similar policy moves in 1994 in order
to bail out Mexico and in 1998 to avoid more severe
repercussions from the LTCM crisis, by an easing move in
1999, ahead of Y2K, which proved to be totally unnecessary
but which led to another 30% rise in the Nasdaq to its
March 2000 peak, and by the most recent aggressive lowering
of interest rates, which fueled the housing refinancing
boom.
But consider for a minute what actually caused the 1990 S&L
mess, the 1994 tequila crisis, the Asian crisis, the LTCM
problems in 1998, and the current economic stagnation. In
each of these cases, the problems arose from loose monetary
policies and the excessive use of credit.
In other words, the economy - the patient - gets sick
because the virus - the downward adjustments that necessary
in a free market - develops an immunity to the medicine,
which then prompts the good doctor, who read somewhere in
the Wall Street Journal that easy monetary policies and
budget deficits stimulate economic activity, to increase
the dose of medication. The ever-larger and more potent
doses of medicine relieve the temporary symptoms of the
patient's illness, but not its fundamental causes...which,
in time, inevitably lead to a relapse and a new crisis,
which grows in severity, since the causes of the sickness
were neither identified nor treated.
Karl Marx might prove to have been right in his contention
that crises become more and more destructive as the
capitalistic system matures (and as the"financial economy"
grows like a cancer). If Marx's conjectures hold, the
ultimate breakdown will occur in a final crisis that will
be so disastrous as to set fire to the framework of our
capitalistic society.
"Not so," Bernanke & Co. will argue, since central banks
can print an unlimited amount of money and take
extraordinary measures, which would, by intervening
directly in the markets, support asset prices such as
bonds, equities and homes, and therefore avoid economic
downturns, especially deflationary ones. There is some
truth to this view. If a central bank prints a sufficient
quantity of money and is prepared to extend an unlimited
amount of credit (and to bail out troubled government-
sponsored enterprises, such as will have to happen in
future with Freddie Mac and Fannie Mae, the same way that
China keeps its money-losing state-owned enterprises
alive), then deflation in the domestic price level can
easily be avoided, but only at a considerable cost.
First, it is clear that such policies do lead to a
depreciation of the currency, either against currencies of
countries that resist following the same policies of
massive monetization and state bailouts, or against gold,
commodities, and hard assets in general. The rise in
domestic prices then leads at some point to a"scarcity of
circulating medium," which necessitates the creation of
even more credit and paper money.
If the inflationists, who are now, under the leadership of
the Fed, in control of central banks around the world, have
their way, this vicious cycle will continue and a very
dangerous economic policy course will be followed. Never-
ending credit creation will eventually result in sharply
rising inflation rates and a much lower U.S. exchange rate.
It will also bring about a disastrous global recession,
which could threaten the capitalistic system as we know it
today.
Regards,
Marc Faber
for the Daily Reckoning
P.S. I'm not sure about the timing of the inflation lift-
off (the kind that would be reflected in the CPI), but I am
certain that, given the irresponsible current credit
expansion, it will happen eventually. When it does, it will
usher in the crisis I have just referred to.
Fannie Mae is the perfect example of today's reckless
excess of credit. The GSE mortgage lender just raised its
projection of mortgage originations for 2003 to a record
$3.7 trillion - this in a $10 trillion U.S. economy and
compared to an increase of total mortgage borrowing of just
$1 trillion between 1990 and 1996!

-->Karl Marx might prove to have been right in his contention
that crises become more and more destructive as the
capitalistic system matures (and as the"financial economy"
grows like a cancer). If Marx's conjectures hold, the
ultimate breakdown will occur in a final crisis that will
be so disastrous as to set fire to the framework of our
capitalistic society.

Hallo,
der erste Satzteil ist noch richtig: Ja, Marx ging davon aus, dass die kapitalistischen Krisen immer zerstörerischer werden und das hat sich - unter Einbeziehung der kapitalistischen Weltkriege - auch bewahrheitet.
Alles andere, was Marc Faber behauptet ist Unsinn.
1. Marx ging nicht wie Faber davon aus, dass kapitalistische Krisen [b]eine einzige Ursache haben:[/b]
„Die Weltmarktkrisen müssen als die reale Zusammenfassung und gewaltsame Ausgleichung aller Widersprüche der bürgerlichen Ã-konomie gefasst werden. Die einzelnen Momente, die sich also in diesen Krisen zusammenfassen, müssen also in jeder Sphäre der bürgerlichen Ã-konomie hervortreten und entwickelt werden, und je weiter wir in ihr vordringen, müssen einerseits neue Bestimmungen dieses Widerstreits entwickelt, andererseits die abstrakteren Formen desselben als wiederkehrend und enthalten in den konkreten nachgewiesen werden.“ K. Marx, Theorien über den Mehrwert II., MEW 26.2, 511.

„Alle Widersprüche der bürgerlichen Produktion kommen in den allgemeinen Weltmarktkrisen kollektiv zum Ausbruch, in den besondern Krisen (dem Inhalt und der Ausdehnung nach besonderen) nur zerstreut, isoliert, einseitig.“ K. Marx, Theorien über den Mehrwert II., MEW 26.2, 535. „Die Krise als Erscheinung aller Widersprüche der bürgerlichen Ã-konomie.“ (Kapitelüberschrift) K. Marx, Theorien über den Mehrwert II., MEW 26.2, 508.

„In den Weltmarktkrisen bringen es die Widersprüche und Gegensätze der bürgerlichen Produktion zum Eklat.“ K. Marx, Theorien über den Mehrwert II., MEW 26.2, 500f.

2. Karl Marx ging nicht wie Faber davon aus, dass in den Kapitalismus quasi ein „mechanischer“ Fehler eingebaut sei, der zu einem finalen Crash führt:
„Die eingetretene Stockung der Produktion hätte eine spätere Erweiterung der Produktion - innerhalb der kapitalistischen Grenzen - vorbereitet.
Und so würde der Zirkel von neuem durchlaufen. Ein Teil des Kapitals, das durch die Funktionsstockung entwertet war, würde seinen alten Wert wiedergewinnen. Im übrigen würde mit erweiterten Produktionsbedingungen, mit einem erweiterten Markt und mit erhöhter Produktivkraft derselbe fehlerhafte Kreislauf wieder durchgemacht werden.“ K. Marx, Kapital III. MEW 25, 265.

„Die Krisen sind immer nur momentane gewaltsame Lösungen der vorhandenen Widersprüche, gewaltsame Eruptionen, die das gestörte Gleichgewicht für den Augenblick wiederherstellen.
Der Widerspruch ganz allgemein ausgedrückt, besteht darin, dass die kapitalistische Produktionsweise eine Tendenz einschließt nach absoluter Entwicklung der Produktivkräfte, abgesehen vom Wert und dem in ihm eingeschlossenen Mehrwert, auch abgesehen von den gesellschaftlichen Verhältnissen, innerhalb deren die kapitalistische Produktion stattfindet; während sie andererseits die Erhaltung des existierenden Kapitalwerts und seine Verwertung im höchsten Maß (d.h. stets beschleunigten Anwachs dieses Werts) zum Ziel hat.
Ihr spezifischer Charakter ist auf den vorhandenen Kapitalwert als Mittel zur größtmöglichen Verwertung dieses Werts gerichtet. Die Methoden, wodurch sie dies erreicht, schließen ein: Abnahme der Profitrate, Entwertung des vorhandenen Kapitals und Entwicklung der Produktivkräfte der Arbeit auf Kosten der schon produzierten Produktivkräfte....
Die kapitalistische Produktion strebt beständig, diese ihr immanenten Schranken zu überwinden, aber sie überwindet sie nur durch Mittel, die ihr diese Schranken aufs neue und auf gewaltigerem Maßstab entgegenstellen.
Die wahre Schranke der kapitalistischen Produktion ist das Kapital selbst, ist dies: dass das Kapital und seine Selbstverwertung als Ausgangspunkt und Endpunkt, als Motiv und Zweck der Produktion erscheint; dass die Produktion nur Produktion für das Kapital ist und nicht umgekehrt die Produktionsmittel bloße Mittel für eine stets sich erweiternde Gestaltung des Lebensprozesses für die Gesellschaft der Produzenten sind...
Das Mittel - unbedingte Entwicklung der gesellschaftlichen Produktivkräfte - gerät in fortwährenden Konflikt mit dem beschränkten Zweck, der Verwertung des vorhandenen Kapitals.
Wenn daher die kapitalistische Produktionsweise ein historisches Mittel ist, um die materielle Produktivkraft zu entwickeln und den ihr entsprechenden Weltmarkt zu schaffen, ist sie zugleich der beständige Widerspruch zwischen dieser ihrer historischen Aufgabe und den ihr entsprechenden gesellschaftlichen Produktionsverhältnissen.“ K. Marx, Kapital III. MEW 25, 260.

„Wodurch überwindet die Bourgeoisie Krisen? Einerseits durch die erzwungene Vernichtung einer Masse von Produktivkräften; andererseits durch die Eroberung neuer Märkte und die gründlichere Ausbeutung der alten Märkte. Wodurch also? Dadurch, dass sie allseitigere und gewaltigere Krisen vorbereitet und die Mittel, den Krisen vorzubeugen, vermindert.“ K. Marx, Kommunistisches Manifest, MEW 4, 468.

<font color=red>Krisen und ihre zerstörerischen Folgen einschließlich verheerender Kriege sind notwendiger und ständiger Bestandteil des Kapitalismus - als Branchenkrise, regionale Krise, landesweite Krise oder Weltwirtschaftskrise. In jeder Krise regeneriert sich der Kapitalismus.

Wer behauptet, die Krise sei nur das finale Schlussstück, der verharmlost und beschönigt den Kapitalismus. Der Kapitalismus kann nur als bewusste Tat der großen Mehrheit beseitigt werden.
Gruß Wal Buchenberg
</font>
Marx über Krisen im Kapitalismus

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