Marc Faber the Swiss fund manager and Gloom Boom & Doom publisher blames the federal reserve's monetary policy for the global financial crisis.
Faber believes the additional printing of money across economies for financing such stimulus packages would lead to "higher and higher fiscal imbalances". In such a scenario, he expects precious metals such as gold and silver to outperform assets such as equities in 2009.
In a recent edition of The Wall Street Journal, Faber says: “The world has gone from the greatest synchronised economic boom in history to the first synchronised global bust since the Great Depression," due to monetary policy.
Our currently disastrous global economy may also be attributed to governments that ignored market signals and central bankers who believed in endless booms, Faber says.
"The Fed never truly implemented tight monetary policy [when it was needed]," he said. In January 2001, the Fed began cutting rates, from 6.5% to 1.75% as the year ended, and down to 1% in 2003, Faber points out. These were the wrong moves, Faber suggests, since the US economy began rebounding on its own in November 2001.
Right now, "the best policy response would be to do nothing and let the free market correct the excesses brought about by unforgivable [Fed] policy errors," Faber says.
The economic downturn and uncertainty in the global markets have focussed investors attention to gold as a unique asset class which can play a vital role in providing stability. Gold has risen at a much faster rate than equities and it is expected that this out-performance will continue for the next few years.
Addressing the gold to Dow Jones ratio at a recent Barron's Roundtable, Faber said: "One day the price of gold will be higher than the Dow Jones."
"The CRB, a broad index of commodities, fell for 20 years in nominal terms, from 1980 to 1999. It is now up 12% and is still inexpensive. The Dow and the S&P are up substantially from the 1980s or early 1990s. Everyone thinks fiscal and monetary measures will work to fix the financial system. I don't. They will be disastrous and fuel inflation. But the supply of oil, gas and copper is relatively limited compared to paper money you can print," Faber added.
If one considers that in 1932 and in 1980 the Dow Jones Industrial and the price of an ounce of gold were very close to parity, it is possible to envisage the same happening again during the current cycle.