Secret gold swap has spooked the market

By Garry White and Rowena Mason

The Daily Telegraph, United Kingdom
11 Jul 2010

It takes a lot to spook the solid old gold market. But when it emerged last week that one or more banks had lent 380 tonnes of gold to the Bank of International Settlements in return for foreign currencies, there was widespread surprise and confusion

The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20pc of the world's annual gold production and the possibility of a sell-off. In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month. Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. It appears to have raised $14bn for whoever's been doing the swapping – small fry on the currency markets, but serious liquidity in the gold market. Denominated in euros, gold has fallen 8pc since the beginning of the month and is now trading at a seven-week low of €937 per troy ounce. The big gold exchange traded funds (ETFs) – having peaked at record inflows in May – have also been showing net outflows over the past few days. Meanwhile, economists and gold market-watchers were determined to hunt down which bank is short of cash – curious about who is using their stash of precious metal for what looks suspiciously like a secret bailout. At first it looked like the BIS was swapping gold with a troubled central bank. After all, the institution is the central bankers' bank and its purpose to conduct transactions with national monetary authorities. Central banks in the troubled southern zone of Europe were considered the most likely perpetrators. According to the World Gold Council, central banks in Greece, Spain and Portugal held 112.2, 281.6 and 382.5 tons of gold respectively in June – leading analysts to point fingers at Portugal, or a combination of the three. But Edel Tully, an analyst from UBS, noted that eurozone central banks would be severely limited with what they could do with the influx of extra cash – unable to transfer it straight to governments or make use of the primary bond markets. She then listed the only other potential monetary authorities with enough gold as the US, China, Switzerland, Japan, Russia, India and Taiwan – and the International Monetary Fund. This led to musings that the counterparty was the IMF, making sense because the lender of last resort is historically prone to cash shortages and has been quietly selling off gold in the first half of the year. Renowned gold expert Jim Sinclair adopted this explanation. The panic came when people mistook a lease for a swap, he argues. Far from being a big release of gold into the market, it is simply a commercial arrangement between the IMF and BIS with a favourable rate of interest paid for the foreign currency. "Gold swaps are usually undertaken by monetary authorities," he writes on his industry blog, MineSet. "The gold is exchanged for foreign exchange deposits with an agreement that the transaction be unwound at a future time at an agreed price. "The IMF will pay interest on the foreign exchange received. Historically swaps occur when entities like the IMF have a need for foreign exchange, but do not wish to sell the gold. In this case, gold is a leveraging device for needed currency to meet requirements. "The many reports that characterise the large IMF gold swap as a sale of gold into the markets do not understand the difference between a swap and a lease." However, the day after original reports about the swaps, BIS emailed a statement saying that the swaps had not been conducted with monetary authorities but purely with commercial banks. This did nothing to quell the sense of mystery surrounding the deal or deals. It is almost inconceivable that a single commercial bank could have accumulated so much gold alone. And cynics have suggested that the whole affair still looks like a secretive European bailout that a single country wants to keep quiet. In this case, one or more of the so-called bullion banks – which act as wholesale market-makers and include Goldman Sachs, Deutsche Bank, JP Morgan, HSBC, Barclays, UBS, Societe Generale, Mitsui and the Bank of Nova Scotia – would have agreed to act on behalf of a monetary authority. This would add an extra layer of anonymity. "So the BIS swaps look like a tripartite transaction," writes Adrian Douglas of the Gold Anti-Trust Association. "The commercial bank or banks made a swap with a central bank or banks and then the commercial bank or banks made a swap with the BIS." Analysts for Commerzbank note that in the meantime, "The price of gold is tending weaker at present."

Fed Officials Avoid Talk of Further Stimulus to Stoke Growth

Bloomberg, July 1, 2010

Federal Reserve policy makers expressed caution about the outlook for the U.S. recovery and bank lending without backing any new steps by the central bank to stimulate growth. Atlanta Fed President Dennis Lockhart said yesterday that while the recovery isn’t sustainable enough yet to warrant raising interest rates, he doesn’t see a need for additional asset purchases to aid the economy. Fed Governor Elizabeth Duke said it may take years to return to pre-recession credit levels and that there’s “no single step” to unclog lending markets. U.S. central bankers are sticking to their 18-month policy of leaving the benchmark interest rate near zero with the European debt crisis sapping investor confidence and U.S. stocks plunging to their lowest close since October. Last week Fed officials renewed a pledge to keep the rate at a record low for an “extended period.” “The underlying conditions are probably less robust than was generally expected,” said Keith Hembre, Minneapolis-based chief economist at U.S. Bancorp’s FAF Advisors Inc., which oversees about $91 billion. At the same time, “I don’t think there’s any evidence yet at this point that suggests that they are going to be so weak that it will put further downward pressure on inflation and upward pressure on unemployment to the degree that it would necessitate further creative easing on the part of the Fed,” Hembre said.
Stocks Fall
The Standard & Poor’s 500 Index fell 1 percent to 1,030.71 after Moody’s Investors Service warned that it may downgrade Spain. Yields on two-year Treasury securities touched a record low earlier yesterday of 0.5856 percent before rising to 0.60 percent. Two days ago, Fed Chairman Ben S. Bernanke met with President Barack Obama at the White House. Afterward, Obama said the U.S. economy is strengthening even as it faces “headwinds” from the European debt crisis and that Bernanke shares his view that the economy is growing stronger. Bernanke said he and Obama talked about how the U.S. economy is being affected by events in Europe, without elaborating. The day before, Fed Governor Kevin Warsh, appointed in 2006 by then-President George W. Bush, a Republican, said any decision by the central bank to expand its $2.35 trillion balance sheet must be subject to “strict scrutiny.” Lockhart told reporters yesterday after a speech in Baton Rouge, Louisiana, that he respects Warsh’s view.
‘Long-Term Credibility’
“Whenever you are purchasing government obligations in the current conditions of deficits and rising national debt, you have to think about the long-term credibility, which I think was Kevin’s point,” Lockhart said. Chicago Fed President Charles Evans said yesterday in an interview with CNBC that the debt crisis in Europe has “definitely imposed additional risks on the U.S. recovery.” In a speech to the Rotary Club of Baton Rouge, Lockhart said there’s a “small risk of deflation,” and the recovery faces threats from Europe’s debt crisis, drops in state and local spending, commercial real estate losses and the Gulf of Mexico oil spill. “Recent developments make me even more convinced that current policy is appropriate,” Lockhart said. “Financial markets and many businesses are more nervous today than a few weeks and months ago, and it’s my view that monetary policy makers should hold to a guarded policy stance and evaluate carefully the risk and reward of a change of policy.”
Hoenig’s Dissent
The remarks were some of the most downbeat on the U.S. economy from a Fed official in recent months. Lockhart, 63, doesn’t vote on Federal Open Market Committee decisions this year. Kansas City Fed President Thomas Hoenig has called for an increase in the Fed’s benchmark rate within months and has dissented from four FOMC decisions this year. The Fed has left the overnight interbank lending rate target at a record low of zero to 0.25 percent since December 2008. Central bankers are concerned that persistent unemployment May hamper the recovery. The Labor Department will report on July 2 that unemployment rose to 9.8 percent in June from 9.7 percent in May, according to the median forecast of economists in a Bloomberg News survey. Recent economic data have pointed to weakness in housing and consumer spending.
Consumer Confidence
Consumer confidence sank in June more than forecast as Americans became distressed over the outlook for jobs and incomes, a June 29 report from the New York-based Conference Board showed. Sales of new homes fell in May to the lowest level on record, the Commerce Department said June 23. Two days later, the agency lowered its estimate for first-quarter economic growth to an annual pace of 2.7 percent from 3 percent to reflect a smaller gain in consumer spending and a bigger trade deficit. While U.S. financial firms have “rather small and manageable direct exposure to the Greek government” and other European sovereign borrowers, there’s still a risk that financial-market pressures may be transmitted to the U.S. economy and that a stronger dollar may weaken demand for exports, Lockhart said. For state and local governments, budget gaps are likely to widen in 2010 and 2011, with one unspecified estimate of the combined deficit for all states this year at $144 billion, Lockhart said. “This situation is our nation’s very immediate analog of the public finance pressures being felt in Europe,” he said.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

Jobless Claims in U.S. Increased Last Week to 472,000

By Bob Willis
July 1, 2010 (Bloomberg) -- More Americans unexpectedly applied for jobless benefits last week, a sign the labor market recovery may be slowing. Initial jobless claims increased by 13,000 to 472,000 in the week ended June 26, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance rose, while those getting emergency benefits dropped after Congress failed to act on extending the legislation. The jump in applications raises the risk that the turmoil in financial markets brought on by the European debt crisis is leading to additional cutbacks in staff. The Labor Department tomorrow may report the U.S. lost jobs in June for the first month this year, reflecting a drop in temporary federal workers who helped to conduct the decennial census. “The labor market is not generating employment for anyone, even for people who have been out a long time,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York, who forecast claims at 470,000. “What we’re seeing in the backup of claims is not a particularly healthy story, showing we can’t generate upside momentum in the labor market.” Economists forecast jobless applications would fall to 455,000 from an initially reported 457,000 for the prior week, according to the median of 46 projections in a Bloomberg survey. Estimates ranged from 440,000 to 475,000.
Stock-Index Futures
Stock-index futures extended losses and Treasury securities were little changed after the report. Futures on the Standard & Poor’s 500 Index expiring in September dropped 0.4 percent to 1,022.8 at 8:45 a.m. in New York. The yield on the 10-year Treasury note rose was 2.93 percent, the same as late yesterday. This is the time of year when states cut back on payrolls in schools, a Labor Department spokesman said. The jump in claims may reflect even larger-than-typical reductions. Another report today showed job cuts announced by U.S. employers fell in June. Planned firings dropped 47 percent to 39,358 from 74,393 in June 2009, according to figures released by Chicago-based Challenger, Gray & Christmas Inc. It was the third straight month that announced reductions totaled less than 40,000. For the first half of the year, announced job cuts totaled 297,677, the lowest six-month tally since 2000. Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.
Four-Week Average
The four-week moving average, a less volatile measure than the weekly figures, climbed to 466,500, the highest level since March, from 463,250 the prior week, today’s report showed.
The number of people continuing to receive jobless benefits increased by 43,000 in the week ended June 19 to 4.62 million. The continuing claims figure does not include the number of Americans receiving extended or emergency benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments plunged by about 376,000 to 4.92 million in the week ended June 12. The Labor Department estimates about 3.3 million people will fall off extended-benefit rolls by the end of July if Congress doesn’t pass emergency legislation. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.6 percent in the week ended June 19. Forty states and territories reported a decrease in claims, while 13 reported an increase. These data are also reported with a one-week lag.
Employment Forecast
The Labor Department tomorrow may report payrolls fell by 125,000 in June, reflecting cuts in temporary census workers as the decennial survey nears completion, economists surveyed by Bloomberg forecast. Private payrolls, which are more revealing of labor-market conditions, probably rose by 110,000 after a 41,000 gain the prior month. A report yesterday showed companies added 13,000 workers to payrolls in June, the smallest gain since February, according to figures from ADP Employer Services. Economists surveyed had forecast a gain of 60,000, according to a Bloomberg survey median estimate. The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. From January through May, company payrolls grew by 495,000 workers.
Federal Reserve
Federal Reserve policy makers last week reiterated a pledge to keep the benchmark interest at a record low for an “extended period” and signaled the fallout from the European debt crisis poised a risk for economic growth. They acknowledged the labor market was “improving gradually,” even as employers are reluctant to boost hiring. The timing of the traditional summer auto-plant shutdowns to retool equipment for new models may reduce claims in coming weeks. General Motors Co. said June 17 most of its U.S. plants will remain open during the traditional shutdowns, a move that economists said could lower claims because some temporarily suspended workers usually apply for benefits.
--With assistance from Timothy R. Homan in Washington. Editors: Carlos Torres, Vince Golle
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

By Ambrose Evans-Pritchard,
The Daily Telegraph
International Business Section
27 Jun 2010
68 Comments

Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy. The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

Related Articles
Bernanke needs monetary blitz as US recovery falters
Global markets fear US bond sell-off as China ends peg
Gold reclaims its currency status as the global system unravels
ECB must buy 'hundred of billions' of bonds
America's money supply plunges at 1930s pace
Bank on King to spot the striking similarities

Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE). Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing. The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era. The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous. Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)". "We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors. Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer". A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds. Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said. Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws. The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired. It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money? Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy. Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes. Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual. The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation. Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt. At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was 2.2pc. We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap. There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.

The Third Depression

By PAUL KRUGMAN
The New York Times
June 27, 2010

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.
Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.
But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.
In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.
As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.
Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.
It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.
So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.
And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

No words needed

Government Expanded 'Like a Cancer': Marc Faber

Antonia Oprita
CNBC.com
17 Jun 2010
Governments have intervened too much in free markets since the crisis started, to the point that they are affecting the health of the world economy, Marc Faber, the author of "The Gloom, Boom & Doom Report" told CNBC Thursday. Later on Thursday, leaders of the 27 European Union member states will discuss ways of strengthening fiscal discipline in the bloc and tightening financial regulation to prevent another economic crisis. In the US, despite criticism about the way it handled the crisis, the Federal Reserve is set to become the most powerful financial regulator under a financial reform bill being discussed in Congress. "I think that governments have become like a cancer, they have expanded in the financial system," Faber said. "I think the biggest problem is too much intervention. Whatever the government touches is usually done worse than in the private sector," he said. Markets usually give signals when something goes wrong but, if the government is to intervene, as is the case of the European Central Bank, the Federal Reserve and the Bank of England's bond buying, government intervention hides these signals, according to Faber. "I think any government intervention has unintended consequences and is negative," he said. When there is intervention, "eventually the market will break the intervention and things will blow out." Government stimulus packages create volatility in stock markets because they distort economic indicators, said Faber, who predicted that the US will implement another stimulus. Supporters of past government interventions to boost money in the economy have said that without them the world economy would have been in much worse shape now, with unemployment much higher and more companies going bankrupt. "Yes I am familiar with this line of argumentation," Faber said. "The Keynesians will all say … we would be in a depression now. But it's not clear to me that this is correct."

Gold, Stocks Better than Bonds

Some economists raise the spectre of deflation, but Faber pointed out that inflation in the UK is high and that food prices are rising by 20 percent in emerging economies. "People who tell me about the big deflation in Japan, why don't they spend a day in Tokyo? It's still the most expensive city in the world," he added. "At this level I'm not particularly interested in buying anything," he said in response to the deflation argument. "I buy gold, I don't know what else to buy." Faber prefers to be invested in stocks rather than government bonds at this moment, because bonds have had a period in which they out-performed stocks and from now on, he predicted that bond yields will rise. Stocks are "in a correction phase" and got very oversold two weeks ago, he said, adding that 1,170 points was the S&P's resistance level. Indexes are unlikely to hit the lows of March 2009 again in the near future, according to Faber.

- Watch the first part of Marc Faber's interview above and the second part here.

He reiterated his view that another, worse crisis may happen in five to 10 years, "when the whole financial system collapses" because the debt problem has been kicked down the road without actually being sold. "I think US Fed, ECB and other central banks have no other option, they will continue to monetize and buy bad paper, period," Faber said. "The central bankers are precisely the ones that don't know that excessive money creation and excessive debt creation leads to a crisis down the road." Europe's problems are bigger than the ones in the US, because in the US the economy has probably bottomed out, he said. If the S&P drops another 10 or 15 percent from its current level, "you can be sure they'll have another stimulus package," Faber added. "The ECB will talk hawkishly, but act dovish, like the Fed in the US," he predicted.