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June 30, 2002

Stagflation and Decline?

By Kathryn M. Welling

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Dr. Marc Faber is one of the great iconoclastic thinkers on the global investment scene. The proprietor of the always-erudite research letter, "The Gloom, Boom & Doom Report," just doesn't seem to have a conventional, or merely ordinary, thought in his head. Then again, what would you expect from a Swiss citizen working in Hong Kong and living in Thailand?

Lately, Marc has been giving over a lot of his brain cells to consideration of the conflicting currents of deflation and inflation at work on the globe. His conclusions made such discomforting reading that I called Thailand to probe further.

And didn't hang up, sanguine. -KMW

You wrote some scary stuff in your recent letter. The U.S. is going down the path of Mexico in the '80s-if not that of the Roman Empire after its peak?

It was inspired, so to speak, by what I've been reading in the international press, a view publicized mostly by American academics and scholars, that "no country has been as dominant culturally, economically, technologically and militarily in the history of the world since the Roman Empire."

And that falls flat, to your globetrotting ears?

No. I pointed out in my report that basically this is wonderful news. The whole world would rather live under an American empire than, say, a Russian or Chinese empire. Meaning one that's totalitarian in nature. A globally dominant U.S. can probably enforce some kind of Pax Americana and may offer the best hope for economic and social development around the world. Granted, European academics don't generally share this view, but I am certain that the average Tibetan, Saudi, Indonesian, or Black African would be much better off if ruled by the U.S.'s "soft imperial influence" than by their own local governments and ruling classes, or a foreign tyrant.


The problem with empires is economic. It's a very costly business to run an empire because you have to consistently police the world. And the previous empires, the Roman, the Spanish and the British, all encountered, in due course, economic decay, accelerating inflation - in some cases, hyperinflation - rising interest rates and, in all cases, a sharply depreciating currency. Indeed, while Sydney Homer did not write his seminal "A History of Interest Rates" back in the mid-1970s to explore the sociological or economic causes of rate fluctuations, he observed that the sustained trends and repetitious patterns of rate changes that he discovered did correlate with the rise and fall of nations and civilizations.

You're suggesting America is past her prime?