Marc Faber: Asia to Benefit from Imploding Welfare States of the West

Dr. Marc Faber has been an indirect mentor of mine. It has been through his writings which has led me to learn of Austrian Economics, the major pillar of my analytical methodology.

Nevertheless, recently he says that imploding welfare states of the West should be positive for Asia.

The Asian Investor quotes Dr. Faber, (bold emphasis mine)

“Asia should send a thank-you letter to [Federal Reserve chairman Ben] Bernanke” for stimulus policies that have been an “utter failure” for the US but beneficial to Asia.

"We had, essentially, a bank failure in 2008 and the financial system in the Western world went bankrupt. Then it was bailed out by governments and the banks have learned nothing. “

Government intervention in private finance will have a damaging effect to the US and European economies over the long run, he predicts. “In 2008, the financial sector [went] bust, and in the future, the [Western] governments will go bust.”

In contrast, “the Asian banks are in a good shape”, says Faber. “Asia reacted well in the 1997-1998 crisis. A period of deleveraging followed. Businessmen became conservative. They paid down debts and the banks became very cautious in terms of their lending.”

As a result, he has more confidence in Asian banks than their Western counterparts. “I would deposit money with a Thai bank, no problem. They will pay me back. They don’t know what derivatives [are], because the derivatives salesmen never get through the traffic in Bangkok,” he quipped.

“I would rather stick to emerging economies than Europe and the US.”

For as long as Asia resists the siren song of the welfare based political economy and shun protectionism, the policy divergences between the West and the East should imply for a wealth convergence, where Asia’s potential higher returns on investments emanating from the declining relative trend of interference from the region’s governments should attract more of the savings from the West.

The above would compliment domestic growth dynamics for as long as Asian governments continue to ease on economic restrictions or regulations.

This also implies that the current contagion based financial market meltdown in Asia—mainly transmitted from the boom bust cycle policies of Western governments which have been aimed at the preservation of the unsustainable state of incumbent political institutions—is likely a temporary event.

And given the right conditions (not yet today) would present as ‘buy’.