Marc Faber is a world-renowned economist and investor that now lives in Asia. Despite his notoriety, he has been a part of the “gloom and doom” crowd for many years. As a businessman, I believe it is my job to remain positive about our national future. Mr. Faber does not have to carry these concerns, nor does he have to remain positive. The problem is that over the last ten years or so, Marc Faber has been uncannily accurate about his predictions for the economic future of this country. This makes it a little difficult to dismiss his considerations quickly.Mr. Faber announced on May 27, 2009, via an interview on Bloomberg.com, that he is “100% sure that the U.S. will go into hyper-inflation. The problem with government debt growing so much is that when the time comes that the fed should increase interest rates, they will be very reluctant to do so, and therefore, inflation will start to accelerate.”
As a country, we are taught to view a depressive market as the ultimate indicator of an unhealthy fiscal condition. My father was a young boy during the 1930s and he often regaled me with stories of taking hot soup to my grandfather while he worked on New York’s WPA projects in the middle of a blisteringly cold winter. “The men were so cold, Roger,” he said. “Even as a young boy I felt so sorry for them because they were working very hard just to keep their jobs.” Images like these stay with a nation for a long time. What we never seem to realize is how much simpler a depressive economic environment is than the scourge of runaway inflation. The solution for a depression is fairly simple, especially in an age like ours when our money supply is no longer backed by fixed assets: Print new money and inject it into the economy as quickly as possible. Not only is it easier, but it’s kind of fun. Imagine taking a credit card to the shopping mall without having to worry about paying the bill. Who wouldn’t like that?
However, the antidote for inflation is a politician’s nightmare: Raise interest rates as fast as possible and pull money out of circulation causing pain and suffering to the general population as well as their constituents. What politician today, Republican or Democrat, has the courage to entertain this notion?
In my opinion, all of us should be economically frightened that our recent Republican and Democratic administrations have so freely dumped trillions of dollars into a myriad of different concerns, whether it be war, national defense, bailouts or dramatically escalating budgets. This is supposed to be the good times of this type of economic cycle. Now is when we get to spend the money. Only later will we run into the terribly compounded price that must be paid.
These events have not gone unnoticed. China has warned the world that they can no longer be counted upon to support the ever-growing debt of the United States. On May 26, 2009, Saudi Arabian oil minister Ali al-Naimi announced at an OPEC meeting in Vienna that “the world could be facing another oil shock, with prices back above the record highs of almost $150 per barrel within two to three years.”
Cambridge Energy Research Associates announced in a study published in March 2009 that the current slow down in investments in oil production could cut nearly 8 million barrels a day of future oil supply growth, and this doesn’t consider the slowdown in natural gas. This reduction in capacity could create a “potentially powerful and long-lasting aftershock.” They note that currently as many as 35 new major energy projects could now be delayed beyond 2013. This led the Iranian oil minister to state recently that “the real economic value of a barrel of oil is much higher than what it is [priced at] today.”
To me, the bottom line is clear: Once a point of consciousness is reached and realized by the American public, we will begin to enter an economic phase that will consider money today to be far more valuable than money in the future. That concept, the time-value of money, will begin to permeate all of our thoughts and economic considerations far more often. This will create a self-fulfilling prophecy of inflation and most likely hyper-inflation that our western governments will not have the courage to manage. No President wants to be left without a chair when the music stops.
I hope you can appreciate that I do not consider this to be a politically partisan discourse, because I believe there is plenty of blame to pass around. I try hard to view these events with a pragmatic eye. Instead of complaining about the way things are, I would prefer to accept reality and foster an economic plan to at least insulate and protect my family, as best I can, from what I believe to be impending problems.
Can you really ever make true profits during times of extreme inflation? Not easily. Inflation eats away nearly all profits from any venture. The best you can hope for is to invest in products or commodities that may consistently advance at the rate of inflation. It looks like you are making money because things are going up during this time. However, when measured by the true value of the purchasing power of your investments, you are actually only keeping your investments current with their true economic value. This is most important during major inflationary cycles.
The commodities business, like has historically risen in price as a reaction to inflation. However, when mixed together with the knowledge of peak energy (increasing energy demand vs. declining energy supplies), I believe there may be a real opportunity to not just stay with the rate of inflation, but to potentially stay ahead of it and profit in real dollars from the expected future price increases as a result of these two major elements coming together at the same time.
Those who courageously can get ahead of this curve and secure resources that traditionally move with inflation have a much greater chance of protecting your interests from inflation’s damaging grip on our financial world. Surprisingly, the Shale regions of North America are considered by some experts to be North America’s most persistent (long-lasting) form of energy production.
Even though I am an energy-biased member of the financial community, I would advise every intelligent investor to maintain a balanced percentage of their investment portfolio in areas that can move ahead with the emerging inflationary trend, namely consumable necessary commodities. I believe this ultimate economic future can no longer be denied by thoughtful and responsive financial analysts nor by any of us.