Marc Faber: The Fed Will Increase QE

Marc Faber was characteristically pessimistic during his interview with Sprott Money late last month.

“I don’t think they will end QE. I rather think they will have to increase it, because as you print money or as you purchase assets, from a central banking point of view, it loses its impact over time. In order to keep the impact going, you have to essentially increase it. I believe that the dovish members of the Fed will print more money. Especially after the resignation of Mr. Bernanke early next year, when he will be replaced, there will be even more dovish members.”

Bernanke will retire in January 2014. Former White House economic adviser Lawrence Summers and Federal Reserve vice chair Janet Yellen, a strong dove, are considered the leading contenders.

A check through Google suggests the media, both large and small, seem to overwhelmingly favor Yellen. “Her notable achievement,” explains Steve Chapman in Reason magazine, “has been to assess the dangers faced by the Fed and to distinguish the real from the bogus. Since the financial meltdown of 2008, Bernanke’s critics have been haunted by the specter of inflation. Yellen has seen it for the illusion it is.”

Faber, naturally, is no Janet Yellen fan. “As far as the eye can see, interest rates under Bernanke will stay at zero and below,” he said during an interview with Kitco News in 2010. “Janet Yellen, another totally ignorant economist removed from any reality, said herself six months ago, ‘If I could implement interest rates below zero, I would do it.’ So now you know what the policy in the U.S. will be.”

He was, of course, correct. In the last three years, easy money has been the rule. It is expected to remain unchanged for at least the next year.

While many in the media are focused on Yellen’s gender (and Summers’ history with the president), there is a much more compelling reason that the Obama administration will pick her: Yellen is an easy money disciple. As Faber predicts, she is the more likely candidate to keep the money flowing for years to come. As we noted on July 29 , Summers is much more likely to let the market take its medicine. His bias will almost certainly tip the scales in favor of Yellen.

Faber will likely be right again. Don’t expect easy money to end with Chairman Bernanke’s reign.

Jason Farrell

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