At a conference in Moscow, Marc Faber laid out the crisis that he sees coming in the next 10 years: Interest on U.S. debt will crush other spending, then inflation and depression will take hold and eventually lead to war.
“Maximum, within 10 years time more than 35 percent of tax revenues will have to be used to pay the interest on the government’s debt, and then you’re in trouble, because then there is not enough money out of the budget to pay for other stuff,” Faber said.
“I am convinced that the U.S. government will go bankrupt, but not tomorrow, and before they go bankrupt they’ll print money, and then you get very high inflation rate, then you get depression with high inflation and eventually they’ll go to war.”
Social obligations will cause Western countries to default, in Faber’s view. “Portugal, Ireland, Italy, Greece, Spain — I think eventually they’ll all default,” he says.
“The obligations of Western governments are far too high. They won’t be able to pay.”
Faber suggests that governments raise the retirement age to 70 and cut back on social spending, but says that even that won’t be enough to solve the problem.
The perceived credit risk of Western European nations overtook that of high-grade U.S. companies for the first time yesterday, Reuters reports, reflecting rising concerns over high debt loads taken on by governments attempting to spend their way out of the financial crisis.
The SovX credit default swap index, a measure of the credit risk of 15 Western European countries, rose to 94 basis points, compared with 92 basis points for the benchmark U.S. index of investment grade companies.
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