Marc Faber says US debt problem is Greece times a thousand
Posted on 06 July 2011 with 4 comments from readers
Echoing hedge fund manager Jim Chanos’ description of Chinese real estate as Dubai times a thousand, Dr. Marc Faber says he sees the US debt problem ‘as Greece times a thousand’.
However, in the short-term future the Swiss investment expert thinks the US dollar will strengthen against the euro as the stock market resumes its correction. His last two Gloom, Boom, Doom Reports have concluded that the correction ‘could be more serious than strategists expect’.
US budget cliff hanger
That said the US deficit debate is set to reach a climax this month with a cliff hanger decision due by August 2nd or the federal government will grind to a halt. Whether anybody would notice is another thing, and few observers see this as a realistic possibility with politics known to be the art of compromise.
However, there is still no proposal on the table to stop the runaway debt, albeit the cessation of the QE2 program at least stops the Fed from expanding its record balance sheet any further, until we get QE3 that Marc Faber and others think is inevitable.
Ben Bernanke’s written treatises make it perfectly clear that he believes in printing money to avoid debt deflation at all cost, and that inflation and devaluation is the lesser evil.
The unpalatable truth is surely that interest rates are being forced up all over the world. China is raising rates for a third time tomorrow from 3.25 to 3.5 per cent while Portguese bonds yield nine per cent more than German bonds after a rating change today.
US rate rises
Eventually US interest rates will have to go up and then the record US debts are indeed a problem a thousand times bigger than the Greek tragedy. How will home owners already underwater with their morgages cope? How will the government pay the interest on its debt? By raising taxes?
Looking more than six months out in financial markets is very hard at the moment, but we will get there and increasingly what lies ahead is a very dark place.
The end of the road is strewn with cans loaded with toxic debts, and the US is the most indebted nation in history. This story just cannot have a happy ending for financial markets.
4 Comments posted by readers:
A$..unhappy for toxic banking, happy for the peasants is the never discussed reality of an admitted nutcase such as Lyndon Larouche..a simple, orderly bankruptcy reorganization of Western finance, the Hebrew Jubilee of sorts..ALL toxic debt, ALL swaps & derivatives CANCELLED – no haircuts, but the finance guillotine..the end of central banking in ALL forms..a return to credit form lending etc…every dummy economist knows these facts..grown men acting badly can ignore the peril only so far into the future
From Bill Bonner today:
From the day of its founding on July 4th, 1776 to the present day, the federal reserve has run up approximately $14.3 trillion of official national debt. And since Congress has only authorized $14.3 trillion of debt, they’re running into a problem. Either they pass a new law, raising the debt ceiling. Or they cut spending so they don’t have to borrow more money. Or, they treat the debt ceiling law like the US constitution, and simply ignore it.
The debt ceiling is a distraction. It’s just an American nuance to a genuine problem that is plaguing all the mature democratic/capitalistic economies. Greece, Britain, Ireland…dozens of other countries…and the US.
And now, borrowing is becoming a problem. Wise…or lucky…countries such as Greece and Britain (not necessarily in that order) are now being forced to cut back. Either because they can’t borrow now…or they fear they won’t be able to do so in the future. Naturally, the citizens don’t like it. They’ve taken to the streets in Athens as well as London.
In London, the schoolteachers “interrupted” services all across England last week. In Greece, they didn’t even have to strike; they weren’t supplying much service anyway.
Where will this lead?
If the debt looks like it will cause a collapse, the Congress will pass a National sales tax. Problem solved.
Your statement that “…we will get there (more than six months out) and increasingly what lies ahead is a very dark place” reminds me of what Churchill said about the 1930s that they were “a dark valley”. What followed Churchill’s dark place was worldwide military confrontation before we entered a long period of increasing peace from 1945.
Does economic darkness on a global scale mean that military darkness is ahead? Ed. will say “no” but I’m not so sure.