A: It depends on how we measure a bubble. The U.S. stock market bottomed out in March 6, 2009, so we are more than six years into a bull market. The U.S. economy bottomed out in June 2009, so we are six years into an economic expansion. By any standard, this is a very long bull market and very long expansion.
If you add all the stock market capitalization in the world, and you add the borrowings in the world, yes, today’s global debt as a percentage of the economy are far higher than in 2007. Recently, a Paul Gauguin painting was sold for US$300 million. So, we are in the middle of colossal asset inflation.
Q: China has moved quickly in recent years to push its currency, the RMB, to become more internationalized. Will the RMB become a real rival to the U.S. dollar?
A: The aim of China and other emerging economies is to start trading and settling accounts outside of the dollar block. The diminishing role of the U.S. dollar within global trade is an ongoing process that is irreversible.
So I believe that China’s RMB will become a much more important currency. This is one reason that China may be reluctant to print money, like Japan, to lower the value of the RMB, if its economy slows down meaningfully. China’s desire is to show to the world that we have a stable currency.
Q: So you believe what the Chinese central bankers say, even though many people seem to expect the RMB to depreciate?
A: I believe trying to boost economic growth by depreciating your currency is one of the most ridiculous ideas. But this is what precisely what Japan, Europe and the U.S. have done. In my view, these people belong to an asylum of crazy people.
Now, if other Asian countries follow the example of Japan and depreciate their currencies, and if China has a credit collapse and economic crisis, China may (consider depreciating its currency). Otherwise, China will not lower the value of its currency, because they have more to lose by doing so than imposing some economic hardship on the people for a few years.
Q: For the long term, do you think the RMB will still appreciate against the U.S. dollar?
A: Some people are very bullish about the dollar, and think it will stay strong for the next five to ten years. That is not my view. If the dollar continues to strengthen, the U.S. Federal Reserve will initiate another round of quantitative easing, QE4 or QE5, to lower the value of the dollar.
China would probably not take up such policy. If the Chinese currency appreciates against the Japanese Yen or the Euro, I don’t think it’s a disaster for China. Because China buys resources, processes them and sells them to the world. With a strong currency, it will be cheaper to buy resources from other countries. Therefore, my inclination is to think that the Chinese will not print money.
Q: China had US$324 billion capital outflows in 2014, and the trend continues into 2015. Are you concerned about this?
A: It depends on what the money is used for. If it’s for building a factory in Vietnam or Myanmar, then it’s not a problem. If the capital is used for buying homes in San Francisco or Vancouver, I don’t think it’s a useful allocation of resources.
I don’t buy the argument that capital is leaving China because of a lack of confidence in China. It’s partly diversification. Some Chinese people are diversifying their assets into other jurisdictions.
Q: If China were to open up its capital account today, what do you think will happen?
A: If there is complete opening of the capital accounts, I would imagine that the RMB would rather appreciate than depreciate. A lot of money has left precisely because the capital accounts are closed. If you open it up, some money will flow back, because they know we can do something in China. If conditions change, we can take it out. If you can’t take it out, it’s actually an incentive to take it out.
Q: Observers often say that China’s society and economy lack resilience, and they are vulnerable to shocks and unexpected events. What odds would you put on a disaster scenario in China?
A: I think it’s nonsense that some people say that the Chinese society is not resilient. On the contrary, Western society has gone soft. People lose their jobs, they want to have unemployment benefits. They have a headache, they weren’t working. So, I believe the Asian societies, and China in particular, are very resilient.
About Marc Faber:
Marc Faber is the editor and publisher of The Gloom, Boom & Doom Report. Born in Zurich, Switzerland, he studied Economics at the University of Zurich and obtained a PhD in economics magna cum laude at the age of 24. From 1978 to 1990, he was the managing director of Drexel Burnham Lambert. In 1990, he established Marc Faber Limited, an investment advisor and fund manager, and has lived in Chiang Mai, Thailand.