Floods of Fake Money

Vancouver is a wonderful place, a clean metropolitan city featuring both breathtaking scenery and fascinating diversity. The place is no longer cheap, a lesson for Americans in dollar degradation.

Figuring I needed a few loonies for my stay and for paying for the cab ride to the Fairmont, I handed a C-note to the foreign exchange lady after landing and racing through immigration unmolested. She returned Canadian $88 in return. Ouch. It took nearly half that, with tip, to get myself to the hotel.

Later, a small gentlemen who had never wasted time at a dentist’s office (I guess the Canadian government can’t make their citizens get health care) convinced me he needed bus fare. The fare was C$4. However, the C$3 in change I had in my pocket seemed to satisfy him. It’s an expensive city when the beggars start out asking for $4.

Despite the monetary shock, I, like Marc Faber, think going to Canada from the U.S. is like going from “hell to heaven.” Dr. Doom began his presentation with an explanation for why my U.S. dollars weren’t going very far in Vancouver. Ben Bernanke’s zero interest rate policy has not spurred economic growth, but instead only serves to redistribute wealth from productive uses to government, where it will be wasted, or to consumption, where it only provides a one-time benefit. In the meantime, printing more dollars only drives down their value.

Real savings invested in capital uses provides economic growth. Resources are combined with human time and talent to develop projects that produce goods and services that customers demand. However, investors will not delay consumption to receive no yield, and the dollar principle eroded in value over time.

If this weren’t bad enough, Faber points out that the Fed’s phony rates are creating massive income inequality. Older Americans who bought their homes in the 1950s and 1960s while riding the stock market boom of the 1990s and retiring with the benefit of a fully funded pension plan have lived the high life. But the median net worth of those aged 35-44 has been devastated. Their stock portfolios were cut in half when the Nasdaq got creamed in 2000. The value of their homes were cut in half in 2008, along with the value of their 401(k)s.

And if Bernanke thinks he’s helping poor people with zero interest rates, it’s just the opposite. “Poor people get hurt the most in a bubble,” Faber told a packed audience. First, the poor do all they can to buy a home at the top, using what little cash they could put toward the purchase. Then the housing market crashes and they lose their job and, in turn, the house.

Next, the poor family must find a place to rent. And what has happened to rents? Rents have increased 9% over the past year. At the same time, food prices have increased 10% a year. That’s what Fed policies are doing for the poor.

The financial press likes to portray the gold market as a bubble. As if poor and middle-class folks have been lining up en masse at pawn shops and gold dealers around the country and stuffing their pockets with Krugerrands. The idea that gold is a bubble is nonsense, says Faber. “Nobody owns gold,” he says.

Dr. Faber, who does own the yellow metal, says, “As long as I live, I will never sell any of my gold.”

All of this dollar trashing is the result of a Fed that continues a Keynesian prescription that can be safely deployed only by a government with a strong fiscal position, author Niall Ferguson told the Agora crowd on Day One of the symposium. No current government has such a position.

And thus world economies lurch closer to the danger zone, be it a fiscal cliff or a “fiscal Grand Canyon,” as Dr. Faber called it. All this liquidity has done nothing for the economy, because as resource guru Rick Rule points out, dumping liquidity on a solvency problem does not solve the problem. “Everything that caused the crash in 2008 is still in place, but with lots more liquidity,” Rule points out.

The Bernanke Fed has expanded the monetary base by nearly three times. But America’s funk continues, while other parts of the world sprint forward.

Ferguson, the author of Civilization, laid it out in terms his kids can understand. “The rest of the world has downloaded six killer apps,” he told the crowd. While competition sinks in the U.S., it’s expanding in places like Japan. China’s kids far outdistance their American counterparts in math. In America, the “rule of lawyers” has now replaced the “rule of law.” The U.S. is no longer the place to go for quality health care. Now “Asian” is associated with a strong work ethic and the consumer society is worldwide.

Making a similar point to Marc Faber’s, Ferguson wondered aloud about the coming clash of generations in the U.S. Young people will likely take a dim view of paying to take care of baby boomers in their old age.

In his fact-packed presentation, Ferguson addressed a number of challenges that confront the world. Don’t miss out on any of his insights. His entire speech and all of the Vancouver presentations are included with our CD and MP3 package. Order today.

So what’s an investor to do? As Dr. Faber told the crowd, it’s hard to value anything when interest rates are zero. But conference attendees are not walking away from the symposium uninformed or unarmed. Presenters have dispensed investment ideas aplenty. Just because you couldn’t make it to Vancouver doesn’t mean you have to go it alone in this uncertain world.

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