How Bernanke Will Cause The Next Crash Before 2014

July 17, 2012, 12:03 a.m. EDT

Commentary: Rich will lose 50% in massive wealth destruction

By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — “Massive wealth destruction coming,” warns Hong Kong economist Marc Faber, one of many “Dr. Dooms” we’ve featured over the years.

Faber warned in a recent interview on CNBC: The Super-Rich “may lose up to 50 percent of their total wealth.”

How? “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.” And as if to punctuate his message, in Barron’s recent “Midyear Roundup,” Faber was asked, “Will things get worse before they get better?”

Answer: “Yes, possibly much worse,” adding “most markets peaked in May 2011.” He expects “further weakness in the second half of the year. Corporate profits will disappoint … stock markets are oversold. The U.S. government-bond market is overbought. The U.S. dollar is overbought, and gold is oversold near term.” Worse, he’s “very negative about the outlook longer term.”

In spite of his doom and gloom about America and the world economy, when pressed Faber did recommend some China REITs. And waffled a bit on America: “It is safest to buy U.S. Treasurys because the U.S. can print money” and “pay the interest. But you are earning only 1.6%, and the cost of living is increasing by about 5% a year around the world. You are getting a negative real return.”

Not very promising in today’s uncertain world, where the American elections are unlikely to solve the economy’s core jobs problem, no matter who wins in November.

So when comes the change? “Down the line.” “The breaking point could be three, four, five years away. The world is heading toward a major crisis.”

OK, he hedges his bet on timing. But he’s very clear on how and why: The collapse will be “caused by Federal Reserve Chairman Ben Bernanke and the Federal Reserve’s continuous printing of new money.” The “bailout and money printing” since the 2008 Wall Street Crash did not “create any long-lasting wealth or create healthy growth.” Nor will the next president. So investors must hedge longer-term bets.

New crash coming before Bernanke leaves Fed by early 2014

The next “collapse will come on Bernanke’s watch.” Warning to investors: Bernanke’s second four-year term as chairman of the Fed ends Jan. 31, 2014. (He will remain a board member until 2020.)

Get it? There will be another crash. The crash will ignite before 2014 when Bernanke’s term ends. The crash will be worse than 2008. Bernanke will be the cause. He will be clueless about the unintended consequences of his policies (like his predecessor Alan Greenspan, who ultimately had to admit to Congress “I really didn’t get it until very late.”)

Bernanke’s no different. When reappointed in 2010, “Black Swan” author Nicholas Taleb said Bernanke “doesn’t even know that he doesn’t understand how things work.”

Unfortunately, since Wall Street simply went back to business as usual after the 2008 Crash, fighting all reforms, a new crash is not only easy to predict in the 2013-2014 period, we can also predict that it will be far more deadly for Wall Street banks, the American economy, taxpayers, investors, consumers and retirees.

Guess what? Many ‘Dr. Dooms’ predicted 2008 crash

Why so easy to predict? Because we’re repeating all the same dumb and dumber mistakes we did in the year leading up to the 2008 crash. The Fed’s cheap money policies have favored banks, devaluing the dollar, destroying the value of stocks, fueling inflation, triggering job losses and social unrest. In short, the happy conspiracy between the Fed and Wall Street is suicidal and will take down the rest of America with it.

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