Marc Faber: Obama makes Bush look like a genius

My favorite economic entertainer is back with his usual over-the-top semi-apocalyptic comments about government officials, the U.S. and more.  Here are a few choice quotes from Dr. Doom followed by the full videos of his session on Squawk Box on CNBC Europe below.

On Obama

I don’t have a very high opinion of Mr. Obama. I was negative of Mr. Bush but I think Mr. Obama makes him look like a genius.

On U.S. States:

The worst investment managers worldwide have been the state pension funds in the United States. They bought everything right at the peak and basically got out of things right at the bottom. And so they’re now facing a shortfall in unfunded liabilities of $2 trillion.

On the U.S.:

When you look at the United States … it’s a total disaster, we’re all doomed, we’re doomed!

On the U.S. Dollar:

In my opinion it’s beyond repair. If the US were a corporation and had proper accounting, they would be ‘Triple C, ‘ nobody would buy their bonds."

Having said that, in the near term I think the dollar could rally because the others are no better, the others are worse. I think that the dollar will rally now against the euro and against the pound sterling and probably against the yen.

The videos are embedded below.

 

Of course, Faber contradicts himself fully on Obama and regulation because he says:

When someone tells me the government should regulate the banks, they shouldn’t. It’s a disaster. But they should have interest rates that are high, that curtail speculation.”

Just three months ago he said the exact opposite about the Central Bank of India on CNBC TV18 there. See the segment in the second clip from 2:00 in my post Marc Faber: “Monetary policy in the United States will stay expansionary”.

When asked about India, Faber says:

The Reserve Bank of India has one of the best monetary policies in the world because they supervise the financial sector very closely, they have maintained relatively tight monetary policies, and also they pay attention not only to core inflation… but the Reserve Bank of India also pays attention to rising asset prices and falling asset prices.

He is consistent about interest rates and inflation here. But the part highlighted in bold is a clear statement in support of regulatory oversight.  So, his statements on CNBC Europe about the U.S. and regulation are absolute rubbish.  He is obviously bashing the U.S. because that’s his shtick. However, you can see the contradiction point blank right here.

Faber does the same thing on gold, saying:

The price of gold is likely to hover between $950 an ounce and $1050. I doubt we’ll go below 1,000.

Really?  That contradicts a statement he made just two months ago. On CNBC TV18 India in November he said:

"I don’t think that you’ll see gold below $1,000 per ounce probably ever"

Now, he’s talking $950.  I agree that gold was seriously overbought at $1200 and now investors should be wary (see Marshall’s last post “A strong dollar, euro downside and a gold liquidation panic” for why). But if you’re going to make a strong statement about gold never going below $1,000, don’t come back two months later saying something else.

Faber is certainly entertaining and his analysis can be useful in context – like in the case of U.S. state fiscal problems. But you have to take much of what he says with a grain of salt; much of what he says is for shock value and nothing more.

11 Comments
  1. gnk says

    Edward, I’ve been following Marc Faber for a few years now, and one thing I learned about him – he points out the most distressing challenges the US faces, and doesn’t fear going out on a limb when forecasting the consequences of how the gov’t will likely handle those challenges.

    It’s easy to dismiss him as merely entertaining. But really, let’s look at the challenges the US faces… the unfunded liabilities in Social Sec and Medicare/aid, the state pension fund shortfalls, the looming federal budget deficits of the next ten years, the rising and accumulating interest costs of that very same deficit, the likely gov’t reaction to deflationary forces, the global soveriegn bond market… I could go on and on.

    That said – is it “entertaining” to publicly discuss those challenges and arrive at a “unpalatable” conclusion?

    What’s your take? I enjoy your blog – but I also want to see you go out on a limb and honestly address how those challenges play out in toto over the next decade.

    Would your conclusion be “entertaining?”

    1. Marshall Auerback says

      In a message dated 1/31/2010 10:14:19 Mountain Standard Time,
      writes:

      It’s easy to dismiss him as merely entertaining. But really, let’s look
      at the challenges the US faces… the unfunded liabilities in Social Sec
      and Medicare/aid, the state pension fund shortfalls, the looming federal
      budget deficits of the next ten years, the rising and accumulating interest
      costs of that very same deficit, the likely gov’t reaction to deflationary
      forces, the global soveriegn bond market… I could go on and on.

      “Unfunded liabilities” in social security and the like is based on a
      misunderstand of public reserve accounting. I don’t believe there is an
      operational constraint on the Government’s ability to meet all Social Security
      payments in a timely manner.

      It doesn’t matter what the numbers are in the Social Security Trust Fund
      account.

      The trust fund is nothing more than record keeping, as are all accounts at
      the Fed.

      So I don’t buy the “intergenerational debt” story.
      50 years from now when there is one person left working and 300 million
      retired people (I exaggerate to make the point), that guy is going to pretty
      busy since he’ll have to grow all the food, build and maintain all the
      buildings, do the laundry, take care of all medical needs, produce the TV
      shows, etc., etc., etc.

      So what we need to do is make sure those 300 million retired people have
      the funds to pay him??? I don’t think so! This problem obviously isn’t
      about money. The ultimate irony is that in order to somehow ‘save’ public
      funds for the future, what we do is cut back on expenditures today, which
      does nothing but set our economy back and cause the growth of output and
      employment to decline.

      And, for the final ‘worse yet,’ the great irony is that the first thing
      they cut back on is education- the one thing the mainstream agrees should be
      done that actually helps our children 50 years down the road.

      Should our policy makers ever actually get a handle on how the monetary
      system functions, they would realize the issue is social equity, and possibly
      inflation, but never government solvency.

      They would realize that if they want seniors to have more income at any
      time, it’s a simple matter of raising benefits, and that the real question
      is, what level of real resource consumption do we want to provide for our
      seniors? How much food do we want to allocate to them? How much housing?
      Clothing? Electricity? Gasoline? Medical services? Those are the real
      issues, and yes, giving seniors more of those goods and services means less
      for us. But that’s the real issue here. =

      1. gnk says

        MA – I agree that a sovereign cannot experience Bankruptcy so long as it controls the creation of its currency.

        Nonetheless, ours is a system where currency creation is done thru debt, and with debt, comes the payment of interest. Will this debt servicing always be manageable? Will the cost of debt servicing continually increase as a percentage of tax revenues? How will the bond market react in coming years?

        Will the US gov’t bail out states, state unemployment funds, state pension funds, and any future banks or corporations?

        As for future GDP growth covering these expenses – I have doubts here. Our economy has increasingly become dependent on debt-driven asset valuations – a system that has obviously reached its limits – and continues to survive due to gov’t intervention. Global wage arbitrage thru the inclusion of Asian countries in GATT – now the WTO, will continue to wreak havoc on wages in the Western world, and thus tax revenues – just at a time when entitlements are expected to grow. Energy costs too – have an impact on our economy. I don’t mean to create a litany of issues to be adressed, I am just pointing out that there are a convergence of processes that all impact the ability of the US economy to grow.

        A sovereign that controls its currency may not experience bankruptcy – but loosely speaking – its own currency can.

        1. Marshall Auerback says

          The trade rules are a red herring. Debt servicing is always manageable when a country issues debt in its own free floating non-convertible currency. The “markets” do not determine our level of interest rates. The central bank does- see Japan.
          On the issue of trade, via a Job Guarantee program, the US can move toward a full employment policy.
          The alternative – cutting back today’s expenditure to “fund” these alleged unfunded liabilities will simply mean less growth today, likely higher unemployment and bigger deficits. I fail to see how that solves the problem you describe.

    2. Edward Harrison says

      Here are a few links. I have addressed state pensions and deficits and Medicare at length in the past. Rather than re-hash it here, I’ll provide the following links:

      On Medicare/Medicaid:
      https://pro.creditwritedowns.com/2009/06/means-of-deficit-reduction-medicare-and-social-security.html

      State local pensions:
      https://pro.creditwritedowns.com/2010/01/pension-disaster-makes-states-and-cities-into-financial-basket-cases.html

      State budgets:
      https://pro.creditwritedowns.com/2009/01/will-federal-largesse-be-countered-by-state-and-local-cutbacks.html

  2. gnk says

    MA – I guess we’ll just have to wait and see.

    My prediction on Japan:

    Japanese debt is largely self-financed – yet there will be limits to that and we will see a change in internal demand and many buyers will become net sellers. Japan will look abroad for demand and yields will have to rise.

    Trade between nations with asymmetric wage/labor/environmental laws destroys jobs for the more regulated nation. These jobs will not come back. GDP will be impacted. This is not a red herring.

    The only Job Guarantee Program that worked under Roosevelt was a World War. I’m no fan of that.

    I agree that we need to continue deficit spending – but only because we have a debt based monetary system that requires it. The system is flawed – the deficit spending is a mere symptom of the underlying, flawed system. I prefer a new monetary and financial regime – but that won’t happen until the current one fails. Gov’ts prefer to give the status quo the benefit of the doubt and write checks willy-nilly until it’s too late, however obvious the problem is.

    I guess I’m as much a doomer as Faber is after all.

    1. Marshall Auerback says

      In a message dated 1/31/2010 16:41:16 Mountain Standard Time,
      writes:

      MA – I guess we’ll just have to wait and see.

      My prediction on Japan:

      Japanese debt is largely self-financed – yet there will be limits to that
      and we will see a change in internal demand and many buyers will become net
      sellers. Japan will look abroad for demand and yields will have to rise.

      Trade between nations with asymmetric wage/labor/environmental laws
      destroys jobs for the more regulated nation. These jobs will not come back. GDP
      will be impacted. This is not a red herring.

      The only Job Guarantee Program that worked under Roosevelt was a World
      War. I’m no fan of that.

      I agree that we need to continue deficit spending – but only because we
      have a debt based monetary system that requires it. The system is flawed –
      the deficit spending is a mere symptom of the underlying, flawed system. I
      prefer a new monetary and financial regime – but that won’t happen until
      the current one fails. Gov’ts prefer to give the status quo the benefit of
      the doubt and write checks willy-nilly until it’s too late, however obvious
      the problem is.

      Well, I think you’re wrong about FDR’s New Deal. I’ve written about this
      before, but see

      _http://www.ritholtz.com/blog/2009/02/time-for-a-new-%E2%80%9Cnew-deal%E2%80
      %9D/_ (http://www.ritholtz.com/blog/2009/02/time-for-a-new-“new-deal”/)

      If you measure the statistical data correctly (incorporating the Workfare
      schemes), you see that unemployment dropped from 25% to 9.6% by 1936. You
      think Obama’s Presidency might be considered a success if he reduced
      unemployment by two-thirds during his first term in office.

      On Japan, that it’s “self-financing” represents a flawed view of bonds.
      They don’t “fund” anything. Whether the owner is Japanese or a Chinese
      person holding a US Treasury, the causality you imply is backwards. See the
      following:

      _http://cas.umkc.edu/econ/economics/faculty/Forstater/papers/Forstater2003/F
      orstater2003_AE_Bondsales.pdf_ (http://cas.umkc.edu/econ/economics/faculty/
      Forstater/papers/Forstater2003/Forstater2003_AE_Bondsales.pdf)

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