mar faber gold to correct by 20 percent, page-4

Choo

True I wasnt trying to do that I was reflecting on what he said.....there are a lot of calls on the China downturn each of which has a different nuance

Fabers is certainly short term although I am a long term gold bull along with him. I dont agree with his hyperinflation hypothesis although it is complete folly not to carefully listen to everything he says in detail.

Ive been to China on business probably greater than 60 times Ive probably been to all the major Asian countries +40 times so alot of my assessment comes from what I observe not so much from the pundits

Although in forums like this pundits can help with different perspectives and opening up ideas for further examination , although Faber has a great track history and certainly has a great mind for such things (so i do take notice)

My views are closer to Hugh Hendry. I have seen massive over capacity that boggle the mind (mine at least). The Chinese are virtually making way to much (by a large factor) of everything.

Economies that make to much credit and invariably create a crisis through over production. Over production is one of the classical signs of major risk, both combined tell us to pay close attention. No one can predict everything, all we can do is watch carefully and apply the lessons of history.

Marx in hsi book The Process of Capitalist Production as a Whole, had sounded a warning note about money lenders.

"The credit system, which has its focus in the so-called national banks and the big-money lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner - and this gang knows nothing about production and has nothing to do with it,''

Hyman Minksy in his Financial Instability theory

"if an economy with a sizeable body of speculative
financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."

Minksy is worth a read for those who want to understand the dynamics of crash conditions

http://www.levyinstitute.org/pubs/wp74.pdf

Schumpeter also studied crashes (a peer of Keynes) as well as Fisher .

All of these guys theories conclude roughly the same thing, print money, lend money in excess, over production will occur , asset speculation will occur and everything at some point will collapse.

the Chinese situation is really just a symptom of the US and western economies credit growth. They have built an export economy weighted on western demand and then the demand has evaporated, given no choice they have had to replace that demand with credit growth, which has made their situation much worse

Historically when over production happens at the scale the Chinese need to navigate REVOLUTIONS happen. All hell breaks loose. Thats not to say it will .... its just the right mix of inflation, over production and credit thats caused it throughout history....these factors should alert us to watch closely (especially if your an investor)

and yes yes yes the Americans are to blame Im not suggesting they are not, as the largest economy Greenspan then Bernanke juiced the system to the point that everyones got economic rabies, the credit expansion that juiced the consumption of the west is the same credit system that is juicing the over production of the east

and I disagree Lok I think the Americans are at economic war with the Chinese and the Chinese in my view (as controversial as it may seem) are much more vulnerable . The American system has been through all kinds of tests, like it or not it tends be robust.

Its very hard to explain all this to the gold thread because its full of such optimistic people. People should carefully think about the full span of history and how unstable things can become (with history as a guide). We have lived and loved through massive growth period founded on the heroin of debt, its lulled us all into a false sense of security.

The next 10 years are probably going to be the darkest of the 21 century. The period will remind us of the fragility of our economic system, the people who live through it will tell their children of this period like my grandfather told me about the great depression. My grandfather was PHD economist who was Deputy Tax Commissioner in the 1950s and 60s, he made me read all the great economic thinkers of that period. It was those thinker who truly reflected on the causes of collapse (because they lived through it and to some extent caused it). The economists of the next 2 decades will do the same.

It will change our economic, political and social systems for generations to come. We will look back on the last 20 years as times of great waste and stupidity. Bernanke and Greenspan won't be well remembered. We will have to return to many of the values and ideas of the 1930-60 period, sound money, balanced budgets, thrift, low debt etc

I dont pretend to be Nostradamus all I can do is reflect on what Ive read and learned over the years. What I see is the making so a "perfect storm" and yes I hope I am dunce and Im completely wrong.