…… Now You Have To Tighten Your Belts, You Have To Save More, Work More For Lower Salaries And Only Through That Will We Get Out of The Current Dilemma That Essentially Prevents The Economy From Growing.”
Marc Faber let fly with that pointed blunt policy advice for America. Mark can’t imagine how the US or Europe can continue to try and solve a Debt problem by piling on more Debt.
“The problem I have with the investment universe is that I find it difficult to envision how the US and western Europe can return to healthy sustainable growth without a complete purge of the financial system and some type of catalyst. It could be hyperinflation, a complete credit market collapse, widespread sovereign defaults, civil strife, major military confrontation.”
In other words solving our current dilemma in the USA and Europe is going to be PAINFUL.
The highly regarded Boston Consulting Group points out the absurdity with facts of trying to solving a debt problem by piling on more debt:
“The fact that between household, corporate and government debt, the developed world has $20 trillion in debt over and above the sustainable threshold by the definition of “stable” debt to GDP of 180%. The facts according to which all attempts to eliminate the excess debt have failed, and for now even the Fed’s relentless pursuit of inflating our way out this insurmountable debt load have been for nothing. The facts which state that the only way to resolve the massive debt load is through a global coordinated debt restructuring (which would, among other things, push all global banks into bankruptcy) which, when all is said and done, will have to be funded by the world’s financial asset holders: the middle-and upper-class, which, if BCS is right, have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path.”
Solving a debt problem by piling on more debt has always made sense to politicians and those that voted for them because up until now its worked. For politicians by pushing the problem forward beyond the next election cycle, and with luck beyond their retirement or death and into our childrens laps. But as But as “Herbert Stein senior fellow at the American Enterprise Institute said:
“If something cannot go on forever, it will stop.”
And stopping it is. Try as they might extend and pretend and kick the can down the road it is not working. Don’t believe it? As of October 5th/2011, in less than three years Obama has increased the federal debt by more than 41 Presidents from George Washington, the first US President in 1789! And how has borrowing $35,835 for every American household worked? US unemployment was 7.8% when Obama took office January 2009 vs 9.1% Sept 2011. Medium household income is down and the poverty rate has increased, there has been an unprecedented downgrading of US Government’s credit rating …..basically spending more US Government money in three years than the previous 204 accomplished…… nothing.
Faber on volatility and liquidity:
“I think the volatility arises because we have the Nasdaq bubble and then we had the housing bubble and the stock market bubble and then a commodities bubble and usually when the bubble bursts like off the 29 or after the late ’60s you have a period of very high volatility for about 10 to 15 years before the markets settle down and then reignite the uptrend. As far the dollar is concerned, the reason I’m actually quite positive is that global liquidity, despite of the fact that the ECB and the European governments will flood the market with liquidity to pay the sales out, that global liquidity is tightening. And whenever global liquidity is tightening, it’s bad for asset prices but good for the US dollar as was the case in 2008.”
Faber on what the true target of #OccupyWallStreet, whose otherwise noble intentions are unfortunately being abused by higher powers, should be:
“Basically we have the Keynesians and the Democrats and I’m notsaying that all democrats are equal, but they want interventions and we have far too many interventions in the western world where the share of the total economy that goes to government and is government- sponsored has grown. And that essentially makes it very difficult for the western world to grow substantially.As to that huge level of debts, i don’t see how the western world, including the US, japan, and Western Europe canactually grow. They’re going to stagnate. And when you have stagnation over a longer period of time, people start to ask questions and then they go after minorities.And Wall Street is a minority – they are a minority and anyone else would have done the same.They use the system. But they didn’t create thesystem. The system was created by the lobbyists and by Washington. So they should actually go to Washington and also occupy the Federal Reserve on the way.”
Faber on the infinite growth of central planning and the government apparatus:
“The problem is, governments in the western world — and I’m not singling out the US — they have grown like a cancer. And now they protect themselves to stay in power and they have a variety of alliances, like, for instance Mr. Obama he has no clue, but when he sees the protesters in Wall Street he immediately says yes, yes, yes that’s a good idea so he can target the minority so can buy a few more votes. And of course the well to do people want to protect what they worked for and also what they’re paying for because as you know in the US roughly 50% of the people don’t pay federal income tax. So actually to say that the rich have not contributed anything is actually wrong.”
Any hope at all? Mark Faber thinks that a flat tax, like the one that GOP Presidential Hopeful Herman Cain’s 999 plan, is a potential positive:
“I tell what you to do. I think a flat tax on everybody would be actually a good measure and i think to reduce the regulatory environment in the US. We have expansionary fiscal and monetary policies. But we have restrictive regulatory policies. And it curtails any initiative by the small businessmen., and the large businessmen, he doesn’t employ and invest capital in the US, he does he that in China or somewhere else in the world where the regulatory environment is more favorable. If you look at net investments in the US, it’s gone down for the last 20 years, and it’s now negative. In other words, basically the capital stock of America is not being replenished. It’s being replenished somewhere else. And at the same time, the policies of the Keynesians have always encouraged spending. “We’re not going to get out of recession by saving. Spend, Spend, Spend.” That is wrong. The lack of savings is the problem of the United States.”
Conclusion? Until the cancer that is Government, Government Spending and the vast armies of regulatory bureaucracies are crushed/liquidated/squeezed to near nothing it sounds like we’re due for the biggest episode of “transitory” pain, misery and suffering in the history of mankind, given the size of Government and the debt saturated economy of today is a monster compared to the 1930’s.