Marc Faber says US debt levels not sustainable, likes wheat, natural gas and Japan
Source: BI-ME , Author: BI-ME staff
Posted: Mon December 21, 2009 3:35 pm

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said although the cause of the financial crisis, was excessive credit growth, the total credit as a per cent of the economy in the US is still growing. Officially the debt to GDP is 375%. It was 186% when the US went into depression after 1929.

"If you add this unfunded liabilities of Medicare and Medicaid and if you add Fannie Mae and Freddie Mac that have been taken over by the government, we are talking about the debt to GDP of over 600%".

Speaking in an exclusive interview with India's Economic Times, Faber said: " In the long run, this is not sustainable. Something will give and they will have to print money".

As a result, the fiscal deficits will go up and when interest rates go up, "the interest payments on the US government debt will be between 35% to 50% of tax revenues and that is when you are in a huge mess," Faber added.

What will the US government do then? "To get out of this mess, they will monetise and they will have all kind of stimulus packages which will lead to high inflation and the standards of living of the average household will go down. It will enrich a few people - the elite, the ones on Wall Street," Faber said.

To distract the attention, the US will escalate its war efforts and will go into war and everything will collapse, Faber said without giving a precise time frame for his prediction.

The Gloom Boom & Doom editor sees the basic problem of the United States as not producing enough compared to the whole economy and having very low net savings.

Explaining his bullish stance on gold, Faber said the world has US$7 trillion in foreign exchange reserves and 70% of these reserves are held by central banks in Asia which have by and large less than two per cent of their reserves in gold. "So I think that a lot of central banks will follow the example of the Reserve Bank of India," [in buying gold].

Answering a question on commodities, Faber said: " There are two commodities right now that stand out in terms of being incredibly depressed; one is wheat - in real terms inflation adjusted it’s at 200 years low.

"The other one is natural gas which is very cheap, adding "these are the two that strike out as being very depressed".

What are his investment ideas for 2010?

"I think as a contrarian, you really want the contrarian play. You should buy Japanese stocks and Japanese banks. This is the absolute contrarian play. Nobody is interested in Japan. All the funds have withdrawn money from Japan. They have given up on Japan and I guarantee you the economy would not do," Faber said

"You can have an economy that does not do well but the companies do well. That is a big difference and I think the Japanese banks are very depressed".


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