Faber’s Long-Term View

The following excerpts are from Gloom, Boom & Doom Report editor Marc Faber’s interview with India’s Economic Times:

The cause of the financial crisis was excessive credit growth and essentially the private sector has reacted rationally. After 2008, the private sector has reduced its leverage, in other words, the consumer credit is declining and business credit is also declining but this is being offset by a huge expansion of government credit. So total credit as a percent of the economy in the US is still growing. Now officially, the debt to GDP is 375%, it was 186% when the US went into depression after 1929. In other words, we start with a much higher debt level. In 1929 we did not have Social Security and we did not have Medicare and Medicaid, and if you add these unfunded liabilities of Medicare and Medicaid, and if you add Fannie Mae and Freddie Mac, which have been taken over by the government, we are talking about the debt to GDP of over 600%. In my opinion, in the long run, this is not sustainable. They will have to print money and the fiscal deficits will go up and the problem will be that one day when interest rates go up for whatever reason, maybe next year or in three years time, the interest payments on the government debt will balloon and in, say, seven years time, the interest payments on the US government debt will be between 35% to 50% of tax revenues, and then you are in a huge mess.

And so I believe that to get out of this mess, they will monetize and they will have all kind of stimulus packages and they will lead to high inflation, and the standards of living of the typical household will go down and it will enrich a few people, the elite, essentially, on Wall Street. But then to distract the attention, the US will escalate its war efforts and then the whole thing will collapse.

The interests of the US and China are further apart than ever before because you have essentially a declining superpower the United States and you have a rising superpower China, and the current superpower the US will obviously try to contain the rise of China, and China will want to have more say in global affairs and you can see their expansion everywhere in Latin America, in the Middle East even in the Indian Ocean, in East Africa and so forth. So that will lead to tensions.

I think the world has to learn that the US is no longer as relevant as it was 20 years ago to the global economy. I mean the share of the US in the global economy has diminished very substantially. You have higher car sales in China than in the United States and, by the way, car sales today in emerging economies including Indian, Latin American, China and so forth are larger than in the G-16 countries. In other words, it is larger than in Western Europe to US and Japan combined so also oil consumption in emerging economies today is larger than in the developed countries. So, we are dealing with a totally new world. There has been a huge shift in the balance of economic power between the rich countries, the arrogant countries of the west, and the emerging economies that are coming up, and that also will lead to tensions, in my opinion; political and geopolitical tensions.

This entry was posted in Uncategorized. Bookmark the permalink. Both comments and trackbacks are currently closed.
  • Here are your three options:

    Option 1: Annual Subscription (no refunds)

    For just $200 per year, you’ll receive everything listed above to completely upgrade the way you manage your investments. This is 17% cheaper than the monthly option. This is what I recommend:






    Option 2:Monthly Subscription (no refunds)

    If you'd like to try The Kelly Letter  without paying the full year, you can pay $20 per month.





    Option 3:Free Email List

    If you'd like to hear more from me but aren't ready to part with any money yet, you're welcome to join my free email list:

    Join the free list





    Thank you for the work you do. You're a household name here and my wife and I often discuss your letters on Sundays. My ten- and seven-year-old children recognize your name and will eventually be taught to invest using 3Sig and 6Sig. You've had an enormously positive impact on our investing and inspired me to look at the world in more rational and clear terms than I did years ago. I'm sure that thousands of others would say the same. Kelly Letter subscriber Matt Barnes
    Matt Barnes
    Product Line Director
    OCLC

    Join Matt and thousands of other rational investors to invest without stress.

    Subscribe to The Kelly Letter  now!

Bestselling Financial Author