Faber on China raising the reserve ratio by 50 basis points:
“I think we already have a property bubble but that doesn’t mean the whole economy will go into a recession. I would add to it that that even these days the slowdown in China, it’s a very large country, like the U.S. was in the 19th century and still is today, so you’re going to have some sectors of the economy going into recession and other sectors still expanding.”
Faber on inflation a risk to the Chinese economy :
“I think that inflation is a dangerous situation everywhere in the world. Mostly for the poor people because they spend a higher percentage of their income on food and energy and for the rich people who’s cost of living are also going up substantially. I think in general, that consumer pricing indices, published by China and the U.S., do not reflect the real cost of living increases that these households in this economy have.”
Faber on whether the risk is greater in emerging markets:
“In emerging economies it’s worse in the sense that if you have capital income in India or Vietnam of a $1,000 U.S. dollar a year, than food accounts for, say, 50% of expenditures and when food prices go up, then obviously you suffer. On the other hand 70% of the population is employed in the agrarian economy. The agrarian sector does quite well.”
Faber whether investors should start pulling assets out of China:
“Not necessarily because even if they tightened, interest rates are still far below the true rate of inflation, and I talk to a lot of people in China, my view would be that inflation in China is running up around 10% per annum.”
Faber on Bernanke’s defense of QE2 and the effect on the markets:
“I think that his defense has to be expected. He has to defend them himself for the repeated mistakes he committed in the past. And all I would say is that basically the problem of the world is that the U.S. over consumed and spent too much on consumption which was then reflected by the growth in the trade and the current account deficit. As can be expected, some countries did not want their currencies to appreciate too much and so we have this problem today at hand. And I think China and the U.S. today are on a collision course, both economically and politically.”
Source: Bloomberg TV
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.