'Massive Wealth Destruction' Coming, 'Well-to-Do' May Lose Half

[carol ann parisi]

Faber: 'Massive Wealth Destruction' Coming, 'Well-to-Do' May Lose Half

Bailouts and loose monetary policy won't create lasting economic improvements but will push up inflation rates that will send the economy tanking and wealthy investors seeing half of their investments wiped out, says Marc Faber, publisher of the Gloom, Boom and Doom report. The Federal Reservehas pumped trillions of dollars into the economy to stimulate it, while the White House has spent heavily to fuel growth as well. The government, however, won't be able to prop up the economy forever, and all that borrowing will come due.

When that support fades, the economy and markets will retreat and retreat hard, creating massive losses for investors, especially when inflation rates rise due to the sheer volumes of liquidity in the system. "I think somewhere down the line we will have a massive wealth destruction. That usually happens either through very high inflation or through social unrest or through war or credit-market collapse," Faber tells CNBC. "I would say that well-to-do people may lose up to 50 percent of their total wealth. They'll still be well-to-do. Instead of $1 billion, they'll have, say, $500 million." Gold will be the best investment now as will stocks for now, which will continue climbing thanks to loose monetary policies before the collapse. "I think that people should own some gold, and I think that people should own some equities because before the collapse will happen with Mr. Bernanke at the Fed, they're going to print money and print and print and print. And so what you can get is a bad economy with rising equity price," Faber says. Federal Reserve Chairman Ben Bernanke has faced a criticism for his handling of the economy in wake of the downturn. Critics charge his loose monetary policies, including keeping benchmark lending rates to near zero and pumping trillions of dollars into the economy to reanimate it by purchasing assets like bonds from banks will fuel inflation down the road and aren't helping that much anyway. Bernanke and supporters say such extraordinary measures were necessary to steer the economy away from deflationary decline and deeper contraction. Bernanke also says he's comfortable with the pace of recovery. "I think there's a reasonable chance, looking at the long-run history, that the U.S. economy will return to healthy growth, somewhere in the 3 percent range," Bernanke said at a recent lecture to George Washington University students, the Associated Press reports. Some Federal Reserve officials, however, say inflation is threatening to rise above the Fed's target for an annual rate of 2 percent. "I'm expecting inflation to be 2 percent this year, and 2.3 percent next year," Minneapolis Fed President Narayana Kocherlakota told the Midwest Economics Association's annual meeting, according to Reuters. The Federal Reserve has said officially that economic conditions warranting low interest rates will stick around through the end of 2014 although other Federal Reserve officials say rate hikes may be needed before then. "My estimate is that economic conditions are likely to warrant low rates until sometime in the middle of next year," Federal Reserve Bank of Richmond Jeffrey Lacker tells CNBC. "If I had to pick a central tendency in the forecast, that's when I'd pick for when rates are likely to rise. That's not a promise, and neither is the committee's statement. It's a forecast of what we're likely to find appropriate in the future." Bank of St. Louis Fed President James Bullard has said that keeping rates low for too long can do more harm than good. "Overcommitting to the ultra-easy policy could well have detrimental consequences for the U.S. and, by extension, the global economy," Bullard said at a Credit Suisse Asian Investment Conference in Hong Kong, according to Reuters.