Marc Faber Says US Treasuries Are Junk

Marc Faber, the editor of a newsletter called the Gloom, Boom, Doom Report did an interview with Bloomberg in which he called US Treasuries junk. Well, what can you expect from someone who writes about gloom and doom?

The quote that's making its way around the Internet is: "If the US were a corporation, it would have bonds that are junk rated."

Well, I guess this escaped from Faber's analysis, but the US is not a corporation and that makes a big difference. Just look at municipal bonds. Despite having similiar or higher debt loads than corporations, municpalities almost never default. That's because they can rely on taxation and budget cuts to pay debts. The same it true of the Federal Government. Long before the US defaults on its debt, you'll see a tax increase and even a potential cut in health and social security benefits. Even the most die-hard socialist in the US would be appalled at a drop in the US debt rating.

The second problem with his approach is that he assumes that high debt levels always leads to hyperinflation. This is simply not true. Japan has debt levels that far exceed the US and it has experienced twenty years of deflation, not inflation. If anything, Japan is an example of how government spending sometimes can't revive an economy. Japan would welcome increased inflation.

Most analysts are spouting on about government deficits, hyperinflation, and the bankrupting of the country. These are good sound bites but not necessarily advice that should be counted on. As I wrote yesterday, the TIPS/Treasury spread shows no sign of the hyperinflation and collapse predicted by many of the pundits.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Comments

  • John Ryskamp

    February 11, 2010

    You\'re not reading him carefully enough. He\'s talking about the fact that Mellonesque liquidation has been battling the supply chain for several years now, and the supply chain just lost. It\'s deteriorating in transportation, agriculture and utilities.

    This is why the CDS hurricane has hit land again--in Greece to be sure, but its target is the U.S. Now the betting begins against the U.S.

    As for inflation, he is talking about Austria 1919 inflation--when the society collapses.

    The notion that muni bonds can rely on \"taxation and budget cuts\" shows you live in bubble world unrelated to the world in which Americans live. Nothing more can be cut, and taxation cannot be increased, without driving down economic activity even faster than it is going down now. The tipping point has been reached in the U.S. economy, after which it cannot survive. That is why the CDS hurricane has hit land again.

    The U.S. is right in the crosshairs. What planet does a freak like you live on?

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