Marc Faber sees bankruptcy for the U.S

Thursday, November 06, 2008 | posted by RedApple
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In an recent interview that Marc Faber gave (MINA News - 5 Nov 2008) , he outlines why the stock market will be stuck down here for a while. He also talked about the growing debt to bailout the banks/insurers/wall street and more additional monetary injection to bounce this economy.

You will find that Marc's argument clearly support our long term Gold investment. I would like to highlight a few of the Q&A from the interview (my emphasis in Bold).

swissinfo: Have we reached rock bottom?

M.F.: I think we're near it. But I also think we'll stick at this low point for a long time. Anyone who thinks that everything will soon be rosy again is naive. It's quite possible that worldwide stock exchanges will experience a similar development to that witnessed in Japan over the past two decades [the Nikkei index has fallen from 39,000 points to under 8,000].Japan also shows that the large amount of money injected to stimulate the markets didn't have the desired effect – but it did produce huge holes in the state coffers.

I have added this Nikkei chart (log scale) for reference:

As the Japan housing bubble imploded in 1990, you can see from the chart below that Nikkei underperformed Gold. Also note from the chart above, JPY was weakest (USD/JPY strongest) around the time of the bubble (Nikkei high). and Yen has been stronger even since. Can we draw any conclusion to the USD with this Credit bubble? I would caution that since this time is a global bubble and we will experience a global recession, it is not as clear anymore that additional delveraging will be coming in form of USD strengthening.

swissinfo: Governments are offering guarantees and are pumping thousands of billions into the markets. Is that a mistake?

M.F.: Yes. The losses are there and someone has to bear them. There are two possibilities. Banks go under and the stakeholders are left with nothing, as is the case with Lehman Brothers, or governments pump money into the financial system so that the incompetent financial clowns in Bahnhofstrasse [Zurich's financial centre] and Wall Street can continue to eat in fancy restaurants.I am clearly in favour of the first because the consequences of these state interventions are massive budget deficits. To finance these, governments have to acquire money. For that they have to borrow money, which makes state debt and interest payments soar. US economists have come to the conclusion from the trends that there will be a US state bankruptcy.

swissinfo: Do you share that view?

M.F.: One hundred per cent. The US government will in future have new debts of at least $1,000 billion (SFr1,165 billion). That's on top of the current state debt of $10,000 billion. And that doesn't take into account state programmes to stimulate the economy. The government will have no other choice than to print money, which in the long term will lead to inflation.