The US risks being hit by Zimbabwe-style hyperinflation and there are signs that the world's biggest economy risks turning into a banana republic, Marc Faber, author of the Gloom, Doom & Boom report, told CNBC's "Asia Squawk Box."
"In the US, we have a totally new school, and it’s called the Zimbabwe school," Faber said. "And it’s founded by one of the great leaders of this world, Mr Robert Mugabe, that has managed to totally impoverish his own country. And that is the monetary policy the US is pursuing."
The government's increased intervention in the economy is likely to slow down economic growth because history shows that every time the private sector shrinks to make way for the government sector, the economy suffers, he said.
Asked whether the US risked being faced with 200 percent inflation, Faber answered: "Well, not yet. Not yet. But I think eventually. If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate."
The Federal Reserve's policy of printing money and the government's intervention in the economy might undermine the US's economic and political clout, Faber warned.
"Well, I wrote two years ago a report entitled 'Is America becoming a banana republic?' And there are some features that characterize banana republics- totalitarian states, very strong government intervention into the economy, and the polarization of wealth," he said.
"And we have all these trends occurring in the US. We are not yet there. And in theory it could be reversed, but I doubt it will be," Faber added.
Because of these factors, US government and corporate bonds, including that of CNBC parent General Electric [GE 10.93 0.08 (+0.74%) ], should be downgraded, he said.
"Yeh, I think GE should be a junk bond. But I also think the US government should be junk," Faber said, adding: "I don’t pay much attention to rating agencies. The rating agencies have totally failed over the last 3-4 years to identify sick companies."
I don't think I really know enough about this stuff to marshal my banner to the inflationistas or the deflationistas. I'm not entirely convinced anyone else does either. But I will say this; what if the government inflates it's way out of it's own debt, while the far greater public debt is destroyed through default? As long as the government's not foolish enough to take responsibility for massive amounts of questionable consumer debt and mortgages out of the hands of insolvent banks, and then actually try to pay that debt off with printed dollars, I guess I'd put my money behind Mike Shedlock and the deflationists, but so far his claim to fame really is that he's been "right" about what to invest in for about half a year longer than Peter Schiff and the inflationists.
ReplyDeleteI used to think your blog was kind of loud with the big sensational headlines and all. Last month my home province of Ontario lost 71000 jobs. Ontario has a third of the population of Canada, which is about a third of the States. So that's the US per capita equivalent of 2 300 000 jobs, or four times the very crappy US rate of job loss. NOW I UNDERSTAND.
My wife asked me this morning if the government actually intended to do anything to help real, stuff-making business, or whether they were just going to give it all to the various money people scumbags who made the problem in the first place.
ReplyDeleteThis is a good question. My seven-person company had to lay off two people and now the state gov and I are splitting the burden of paying them NOT to work, via unemployment (neither is likely to be able to find a job). I'd love to have them back if the feds wanted to pay half of the cost of putting them back to work, rather than the state paying half the cost of them being out of work, but that ain't gonna happen--it's all going into the hands of the thieves who stole the rest.
There's a good reason to print money, and a bad one. Further lining the already-stuffed pockets of thieves is not a good way.
Not surprised by comments as Peter Schiff..whose mortgage broker speech of 2005 can be used as a checklist of all that has gone wrong. He also last week, stated that hyperinflation was on its way and that the expected arrival would start late this year or early next..now this is the 2nd comment backing up his statements...I believe that all great empires fall..and this country is well on its way to joining the likes of history..and most if not all of America is not ready..we are following the path of the great depression like a playbook..look at Hoover and Roosevelt and you will understand that the next 10 years in America will be very very bad..."A nation that does not learn from its past is doomed to repeat it"..Winston Churchill
ReplyDeleteIt's coming.
ReplyDeleteWhen pushed to choose, government will always choose price inflation over widespread asset deflation. Why? Because government responds to it's primary constituency- in this case, the wealthy. The wealthy are not wealthy because of how large a wage they earn or how much fiat currency they own. They are wealthy because they own assets. Remember: the wealthy own assets, the rest of us own money. Therefore government will always attempt to destroy money to save assets.
Even the blind are coughing in the raised dusty mess, only the President and his men are in the great final act of denial and support for the bankers. Bank is the new four letter word.
ReplyDeleteAnd we have a money printer named "Helicopter Ben" at the helm. Take a read at Bernankeism and hyper-inflation. It's very frightening to see that we have such a guy at the Fed!
ReplyDelete:::yawn:::...
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