The Shadow Banking System

I have argued for many years that because of easy monetary policies, we had rapid credit growth in the Western world and also in other countries, whereby, after the Asian crisis, there was some de-leveraging in Asia. But in general, if you look at the world, say compared to the 1950s, 1960s, and even the 1970s, it is very clear that financial markets, official and less official, have grown disproportionately to the real economy. In other words, you have say, a global GDP of $60tr or whatever it is and you have financial markets that turn $60tr around in a week or less. I believe that one day this financial bubble will have to adjust on the downside. Either it will adjust on the downside because we have an inflationary burst or because we have a collapse of the system. We do not know exactly how the end game will be played. But in general, I cannot see how the derivatives market will continue to exist for the next 5,000 years. It has got to end one day and when it ends one day, either through war or through a financial collapse, it will be very painful.

- Source, The Prospect Group:

http://www.theprospectgroup.com/executivefocus/profile/marc-faber-on-shadow-banking-market-psychology-the-global-impact-of-american-monetary-policy/81781/