Friday, September 18, 2009

Unlikely bull in a China shop

Sending shivers up and down the spine:

Faber on China: Still right after all these years…
Damian Kestel in a weekly newsletter has resurrected one of Faber’s most prescient pieces of work, dating back to October 2004, on China

You are now all members of the central committee of the Communist Party which meets today for the first time in a year. I am Comrade Faber.

Increasingly, we will challenge the American hegemony … in terms of military might, the US is far superior to our nation. But there is a chance that we can beat them economically.

Now my esteemed comrades will ask me why we at the central bank are so stupid and continue to buy US dollars and US assets? Because it is clear there is a crisis looming some time in the future… My plan is to keep the US dollar very, very strong. First of all this forces our neighbours in Asia to also buy US dollar assets… So the whole of Asia is buying US dollars and by doing so, we keep the dollar at a high level. It continuously undermines and hollows out the manufacturing sector in the US. And our Hindu friends they gradually destroy the services sector that is tradeable in the US. .. At the same time we are buying US bonds and by doing so we keep interest rates artifically low….

…Whereas the US is spending and borrowing we have had this huge increase in capital spending, in net capital formation, where our net capital formation rose until early this year by approximately 50 per cent per annum.

But still we think this wealth transfer from the US to Asia will continue. Our region is not dependent, unlike in 1997, or before 1997, on foreign capital. We can grow with our own capital…

..We will choose the perfect timing when geopolitical tensions are such that they are very conducive to an economic crisis in the United States. And relatively speaking, we will do better. We will also suffer but far less than in the western world.

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