Exposing the cracks in the financial system

Marc Faber is positive about the outlook for the global economy, but deeply concerned about global asset markets. So what exactly is the asset inflation economy, and why is he so worried about it?

A well-respected independent economist and strategist with a bearish trait told me recently that he wished he could be bearish, but that he couldn't find anything that he thought would disturb the asset markets and the global economy in the foreseeable future. Looking at the "real" global economy and at what people produce in terms of manufactured goods and services (ex-financial services), I would have to agree.

Comparing the current global economic expansion, which began in the US in November 2001, with previous economic expansions, it seems to me that the "real economy" isn't showing any signs of the overheating that, in the past, led to aggressive central bank monetary tightening. So, I am, like my strategist friend with the bearish trait, also impressed by the prospects for the global economy. However, I am increasingly concerned about the inflated asset markets around the world, and about the almost unanimous belief that nothing will ever come between the "Goldilocks" economic conditions and the Fed, in conjunction with the US Treasury standing ready to support markets should they decline meaningfully and disturb the current heavenly asset market conditions.

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