WASHINGTON, October 22, 2012 – According to a short article in this morning’s CNBC online, “The debt burden in the U.S. and other Western countries will continue to increase,” according to a prediction by “Marc Faber, author of the Gloom, Boom and Doom report…” Faber told CNBC that this would lead “to a ‘colossal mess’ within the next five to 10 years.”
Marc Faber is far from one of our favorite Wall Street gurus. Unpleasant, highly opinionated and always talking his book, he and his thoughts are almost entirely negative on everything, and “catastrophic” is probably the best descriptor for most of what he says.
But that having been said,* Faber this morning gave shape to something we’ve been worried about for a long time; namely, that the utter paralysis of Western governments as they confront a financial crisis entirely of their own making is, sooner or later, going to ignite genuine, grassroots revolutions. You know, the real kind, with guns and blood and destruction on a massive scale.
The last time we saw anything resembling violence of this magnitude in the U.S. was the Civil War and, before that, our own American Revolution in 1776. Ready for that? Most people aren’t, except the survivalists and plenty of members of the NRA.
Interviewed on CNBC’s “Squawk Box,” Faber declared “that the political systems in place in the West would allow the debt burden to continue to expand. Under such a scenario of never-ending deficits, the Western world would rack up huge deficits.”
Noting the obvious—or what should be the obvious, Faber observed: “’I think the regimes will try to keep the system alive as it is for as long as possible, which means there’s no fiscal cliff, there’s a fiscal grand canyon.’”
“’Eventually, you have either huge changes occurring in a peaceful fashion through reforms, or, usually, through revolutions,’ he said. The U.S. is getting closer to such a revolution, he said, as is Europe,” predicting that such events would happen in a five to ten year time frame.
This is a pretty grim prediction—par for the course with Faber—but like any Doom and Gloomer, he’s bound to be right on occasion, and this is likely one of those occasions. The problem in the West as a whole is that governments actually have almost zero knowledge anymore regarding what life is really like for most of their fellow citizens. Once in office, it’s nearly impossible to dislodge them, and they become fast friends with their donors—crony capitalists—who help keep them in power with obvious benefits for the crony capitalists.
Government grows to accommodate the ambitions of the bureaucracy, and big business grows bigger due to taxpayer-funded wealth transfers to big business. The game is so much fun for the politicians and the big businesses that everyone else is useful only in the sense that they have funds that can be transferred to this Combine to borrow Ken Kesey’s perfectly useful term.
Problem is, people got too greedy and the system is horribly broken. But the people who broke it have no reason to fix it since it would bring an end to their game. The result: sclerosis—fiscal, governmental, and corporate. And we all pay.
The Combine, we have just about concluded, has no capacity to change, nor any desire. So it may have to be changed violently. Which is what Faber is talking about. People can only stand so much before they have no choice but to revolt.
That’s a pretty gloomy assessment, for sure. But on some level, this is probably what’s causing issues on Wall Street as investors face the year-end consequences of years of political stupidity and obtuseness. We still think that there’s a slow but steady investor bail going on here and are reducing our positions accordingly.
The market is up somewhat as we finish this, around 10:30 a.m. EDT. But again, where it goes is unpredictable. Indications are that developing markets are still in pretty good shape, notably fiscally conservative ones like Malaysia and Singapore. The Philippines seem attractive as well, and all can be sampled via ETFs.
Here, we are nipping in to a few utilities as the charts tell us they’re okay. For now. We look to get back in to our real estate REITs once the nonsensical dumping comes to an end. And we hold on to a small gold position (IAU), well, just because.
Meanwhile, stay thirsty my friends. It continues to be an interesting fall for investors as, frankly, no one really knows what to do.
*Fans of ancient Latin: Note the ablative absolute in this construction, still one of our personal favorites after all these years, courtesy of Caesar’s Gallic War commentaries.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He continues to own a position in IAU.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
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Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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