Will capitalism fall like communism? Another Dr. Doom says yes
Faber says that a sustainable recovery will occur only when the corporate system is cleansed of losses, and he hopes this happens by free market forces rather than government intervention. If this does not happen, and as it stands now he believes governments are trying to protect their poor investments and thus prevent this from happening, then he thinks capitalism risks collapsing "the way communism collapsed."
He spoke aon CNBC Europe's Squawk Box as part of a panel. The U.S. and its actions were a major part of the discussion, in which Charles Ortel, Managing Director of Newport Value Partners, said the U.S. is waging a war on capitalism. And he gave examples of the government is turning CEOs and companies against their fiduciary duty to shareholders. Ken Lewis being told to lie about the Merrill Lynch transaction was one.
The fascinating round table reiterated what many have repeatedly said: let market forces decide the fate of companies and the economy. Instead, central banks have lowered interest rates and printed money at full speed. This market intervention already influenced oil prices when implemented, and long-term, will lead to a fall in purchasing power and living standards, especially in developed countries, Faber said.
If you take 2006 and 2007 as the years of peak prosperity in the long-term cycle, Faber says the world economy is not likely to return soon to that level. When it does, though, there will be serious inflationary pressures because of central banks' actions.
And as if this isn't enough gloom and doom, Faber also said, "The US government for sure will go bust. That I guarantee you. Not tomorrow, but it will go bust." To this remark he got harsh disagreement with another panel member claiming the U.S. is "underlevered," but that didn't dissuade him from saying, "I think this is the beginning of a long-term bear market. And I think the government will have to keep interest rates artificially low because deficits will be too high."
Much like Meredith Whitney, who called the recent bank rally "the great government momentum trade," Faber said money printing was the reason for the market rally. And the more money printing continues, the worse the data will be. "Believe me, globally all the central banks will print money like there's no tomorrow." They believe their actions are positive, but instead, they are actually destabilizing the system, creating "enormous volatility." He added, "The best way to deal with any economic problem is to let the market work it through."
So what does Faber recommend? Buying real assets, buying blue-chip stocks, and he's bullish long-term on Asia.