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You always get
great presentations from the biggest players in gold and silver at the annual
London Bullion Market Association conference.
Being in Hong
Kong this year, the world's premier event for the bullion industry also got
lots of great insights from genuine Asian insiders – ICBC, Kotak Mahindra, the People's Bank of China no less.
"When the
People's Bank speaks it pays to listen," as Tom Kendall of Credit Suisse
put it in his conference summary.
"Especially
when it talks about gold."
But the star
of the show, at least by popular vote at Tuesday's close, was Swiss ex-pat
and long-time Asian resident, Marc Faber.
If you know
his work, you can guess his theme – what doom and gloom mean for the
boom in gold. Starting, of course, with the unintended consequences of
constant government meddling.
"Continuous
interventions by governments with fiscal and monetary measures, instead of
smoothing the business cycle, have actually led to greater instability. The
short-term fixes of the New-Keynesians have had a very negative impact,
particularly in the United States."
Faber's big
beef is with US Federal Reserve chairman Ben Bernanke. But "numerous Fed
members make Mr. Bernanke look like a hawk," he said. Nor does it matter
who is running the White House. Because thanks to welfare and military
budgets, "spending is out of control, tax is low, and most spending is
mandatory."
So Federal
Reserve policy is inevitable, Faber went on, and while we haven't yet got the
negative interest rates demanded by Fed member Janet Yellen,
we have got negative real interest rates. The US and the West had
sub-inflation interest rates in the 1970s too, and we got a boom in commodity
prices then as well. But with exchange controls now missing from the
developed world, "One important point," said Marc Faber:
"Ben
Bernanke can drop as many dollar bills as he likes into this room," he
told the LBMA conference in Hong Kong, "but what he doesn't know is what
we will do with them. His helicopter drop will not lead to an even increase
in all prices. Sometimes it will be commodities, sometimes precious metals,
collectibles, wages or financial assets. [More importantly], the doors to
this room are not locked. And so money flows out and has an impact elsewhere
– not in this room."
That elsewhere
has of course been emerging Asia, most notably China (see our video pick of
the Top
5 Slides from LBMA 2012 on YouTube for more). But back home, these
negative interest rates are forcing people to speculate, to do something with
the money, said Faber.
These rates
artificially low, well below the 200-year average.
That's doing
horrible things to the United States' domestic savings and thus capital
investment. "You don't become rich by consuming. You need capital
formation," said Marc Faber. Unlike investing in a factory to earn
profits and repay your loan, "Consumer credit is totally different. You
spend it once, and you have merely advanced expenditure from the
future."
 
So far, so
typical for the doom-n-gloomster. Noting total US
debt at 379% of GDP, "if we included the unfunded liabilities then this
chart would jump to the fifth floor of this hotel!" said Faber, waving
his red laser pointer at the ceiling. After the private sector
"responded rationally" to the runaway 20% credit growth of 20% by
collapsing credit in 2007-2009, the US government stepped in to take over
– and "Government credit is the most unproductive credit of
all."
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