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Marc Faber: Monthly Market Commentary: March 1, 2021

I have a few American friends who are greatly concerned about worsening economic, social, and political conditions in the US. Several of my friends are also convinced that war between the US and China is inevitable. Until about two years ago, I thought that such an outcome was most unlikely. Recent events have, however, raised my concerns that a confrontation between the world’s largest economies (US, China, Russia, India, and respective allies) was increasingly a possibility.

My friend, Patrick McKim argues, and I agree with him, that, “Inflation is always coincident with war, and hyperinflations often occur either at the beginning or the end of wars as a cause or a result, or both,” and that, “It should be readily apparent by now that the money printing will continue in the US indefinitely so long as Oligarchs benefit.” [McKim’s Oligarchs are the ruling class, the elite, etc., which we could also call the interventionists that manipulate the system to their advantage. This line of thinking reminds me of Ludwig von Mises words: “Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism, and peace, so is inflationism part and parcel of imperialism, militarism, protectionism and socialism.”

In the past, one impediment to war was “affordability.” But if a country, such as the US, which holds the world’s reserve currency, can nowadays engage in a confrontation at no immediate cost, since it can print money, the probability of military conflict increases. Furthermore, as Arthur Schlesinger Jr observed, “All wars are popular for the first thirty days.”

The US politician and author Frederic Clemson Howe (1867 – 1940) opined that, “There would be an end of war and preparations for war if the cost were borne by those responsible for war.”

I would not structure my entire asset allocation by betting on a major war breaking out in the immediate future but I would keep this possibility in the back of my mind. I believe that with or without war, commodity prices including oil are likely to increase further.

Also, do not forget that according to French poet and philosopher Paul Valéry, “War: a massacre of people who don’t know each other for the profit of people who know each other.”  

For the peace of mind of my readers a wonderful virtual collection of statues courtesy of Laura Stein is linked here.  

Praying for peace (it is too late to pray for “sanity” among global leaders).

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Productivity, not Debt, Drives Wealth

The idea of creating and enhancing “demand” with new money is hardly new. It is by far the easiest way to simulate demand growth. You print money (or otherwise boost credit). The economy takes up the new purchasing power and confuses it with real demand. Sales go up. Prices rise. A boom follows.

But it is a fool’s boom. Jean-Baptiste Say explained why more than 100 years ago. “Say’s Law” tells us that real demand can only come from production, not from printing-press money or expanded credit.

It is not called “Say’s Good Idea” or “Say’s Suggestion.” It’s “Says Law” because it is like the law of gravity. You can pretend it doesn’t exist. You can ignore it (for a while). But like all natural laws, it eventually has the last word.

Debt cannot increase demand because it is just an arrangement between people. The saver transfers his savings to someone else. There is no increase in demand – just a shift from one person to another… or from one time to another. In order to increase real purchasing power, real output must increase. People have to produce more. And earn more.

Demand comes from real incomes. And productivity drives, more or less, incomes. And capital investment drives productivity. When you spend less than you make, you’ve created capital. But by discouraging saving, this funny money pinches off capital investment, innovation, and productivity. Instead, money is used simply to make more money – bypassing the whole sequence of saving, investing, and productivity growth and income growth that normally drives the economy forward.