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Robert Winner

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Colossal Mess In the West: US Debt

Mark Faber, the Swiss Investor, states that the debit burden in the US will grow for 5 - 10 years and the fiscal cliff will become a fiscal Grand Canyon. He believes that bureaucracies must be reduced by 50% or more, the S & P will fall by 20%, there are no corporate earnings and no industrial growth.

He believes that the Fed and increased regulations will continue to kill the economy.

Faber argued 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.

He feels that change can come by peaceful reform or revolution but the US is closer to revolution.

What do you think? Is he right? Is the economy important in this election? Has it been given the attention it deserves?

Topics: economics
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    Oct 23 2012: He is right. The economy would be important to the election, if either camp was presenting a solution for our problems long term... They are not. It has not been given the attention it deserves. If you care about the future of this country, look into a third party candidate.
  • Oct 23 2012: "Mark Faber, the Swiss Investor, states that the debit burden in the US will grow for 5 - 10 years and the fiscal cliff will become a fiscal Grand Canyon. He believes that bureaucracies must be reduced by 50% or more, the S & P will fall by 20%, there are no corporate earnings and no industrial growth."

    Japan has survived much higher debt, Greece couldn't cope, the way the US structures its debt and the confidence people have in its economic strength resembles Japan more than Greece.

    "He believes that bureaucracies must be reduced by 50% or more, the S & P will fall by 20%, there are no corporate earnings and no industrial growth.

    He believes that the Fed and increased regulations will continue to kill the economy."

    Taxwise the US is a great place to have a corporation in because effective taxes are quite low, but other factors (infrastructure, health care & education affordability), ones that are handled by government in other developed countries, are lacking. But of course Mr. Faber wants to get rid of regulations because that will make him money.

    "Faber argued 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."

    Not all Western countries are like that, a bunch were running surplusses as late as 2008, including some prominent "welfare states", even the US was running a surplus in 2000, but then Bush pulled out the credit card to (not) pay for wars and tax cuts for the rich.
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    Oct 24 2012: You just have to love the term "fiat currency". "Commodity money" is the opposite of fiat currency because it is freely redeemable for some tangible commodity, like gold. That all changed in 1944 when FDR took away the right of the bearer to demand payment in gold and instituted "representative money". Then, in 1971, Tricky Dicky took us off the representative money standard and we went to fiat money where the government can print limitless, unbacked federal reserve notes simply by fiat. Only time will tell if Faber has made a correct guess. But trainwrecks do not get better, they just keep going until all the energy is gone and then they stop.
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    Oct 24 2012: Obama and Romney can neither talk about the curency debt crisis.
    If they did, it might precipitate a collapse in confidence that would collapse the whole house of cards.
    So, in that regard, i think they are both acting responsibly.
    The collapse of confidence is going to occur as soon as those at the end of the credit chain call the debts in.
    I imagine that the global banking cartels are sitting on these end-chain debts. So the whole thing can continue on funny-money until they decide to jerk the chain.
    I don't think they will jerk that chain outside of a few demonstration events to let everyone know who is in charge.
    It is certainly not in their interests to pull in the whole scam, so the debt crisis does not actually exist - unless you want to get out from under the threat.
    There is probably a good arguement for getting out from under the rule-of-banks simply because it was built on usury.
    Usury cumulatively syphons value from economies by a net inflow to the usurer in the form of currency. The usurer does not generate new value but relies on the value production of the users of the currency. While ever the surplus of value exceeds the usury, the effect is not percieved.
    In a perverse kind of way, the action of usury mimics the expiry of value - keeping the currency roughly in-step with the true current value, but the excess currency builds up in the legers of teh usurer in the form of ultimate power.
    The only way to address this structural imballance and return soveriegnty to nations is to return currency to current value. The gold standard helped, but still has the problem of disconnect from real current value - it can be hoarded.
    If the currency was structured to better allign with actual productivity, then manufacturing would become a priority again, while energy expended on bogus financial instruments would collapse and release that part of the workforce back to the generation of real value. But you gotta do it in a snap - before your chain gets jerked.
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    Oct 23 2012: He is right.

    The last 2 presidents and congresses have saddled the U.S. in a big way. But the hockey stick started in 1971 when Nixon took us off of the gold standard and the rest of the countries went off of Bretton Wood. This has financed more and more growth at the Federal level.

    Government was shrunk by 50% under Coolidge and Harding. I doubt that could be done now but you could sure do a lot. Getting rid of some these agencies would be a 2 for 1 deal in that they would free up regulations and reduce government cost. Also the many subsidies could be gotten rid of with little effect.

    The economy probably has not gotten the attention it deserves because O sure doesn't want to talk about it and many of the voters are asleep.

    On the other hand if the free stuff is taken away too quickly there will be riots, not a maybe.

    To me the imperative is that the voters be educated. It can be done.

    If this is not resolved the world will fall as the U.S. will take many countries with it.
    • Oct 24 2012: I'm no fan of Nixon but the gold standard had been done away with quite a bit before his time.
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        Oct 24 2012: What the hell are you talking about?
        • Oct 24 2012: I'm talking about the fact that the United States went off the gold standard in 1933.
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        Oct 24 2012: That is irrelevant.
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          Oct 24 2012: John, You need to read the Nixon Shock. The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.

          Pat, am I on the right track here. You do make a old man do a lot of research before I join the fight.

          Bob.
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          Oct 24 2012: is this Richard Nion which motioned by prisident obama in the third debate ?


          that is a good ads
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    Oct 23 2012: the economy is important to people to the extent of their own experiences. many people feel unemployment and also many feel rising prices. as of now, the political elite of the US successfully countered these fears. unemployment is battled with ever increasing social programs, and inflation is partly denied, partly presented as a desirable thing to grow the economy. as long as people believe in these, the state of the economy will not be a central theme in campaigns.

    people do not feel and do not care about the core issues. the shrinking capital stock, the reduced production capabilities, the suffocating small businesses, the completely misallocated capital distribution, the trade balance deficit, the impossible long term promises the government will fail, the lack of creative power and adaptation, and so on. these revelations are due in the next one or two decades.
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    Oct 23 2012: What is debt other than a balance sheet component and a function of relative worth? Yes, If I make $10 and owe $10 you could say I have $0 equity. But what about the other assets? Why do countries continue to buy US Treasuries if our debt is catastrophic? Because of the other assets: vibrant corporations, dedicated and capable workforce, infrastructure, military hardware, etc. Debt has to be watched and managed, agreed. But not feared. As a percentage of GDP it has been much worse previously than it is today. The real 'fear' of national debt is the hate-mongering and the accompanying military build-up (which is the biggest contributor to debt growth - oh yes, and civilian death), "tax breaks" to "stimulate economic growth" (read: rich guys make more money on military spending), and 're-deployment' of investment in R&D efforts towards more tax breaks and military spending. Do I think the economy is important in this election? I'll just say that my experience has shown that if a subject is popular, it's probably not the problem or the real issue needing attention.