Tuesday, Oct 14, 2008
U.S. Treasury Secretary Henry Paulson’s sweeping measures to bailout the financial system will probably fail, Marc Faber, editor & publisher of the Gloom, Boom and Doom Report, tells CNBC’s Asia Squawk Box.
The proposed $250 billion infusion into financials is meaningless — merely a drop of water on a hot stove, Faber, popularly known as Dr. Doom says. These measures do not address the fundamental problem.
“What I object to in all the bailout plans in the Western world is (that) they do not address the fundamental problem. And the fundamental problem is overleveraging,” Faber comments.
He adds that the high gearing needs to be brought down, similar to what the Asian financial system had to go through after the 1997 financial crisis.
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“The U.S. economy’s debt to GDP has grown from 130 percent in 1980, to 350 percent at the present time,” notes Faber. “The leverage has been under the supervision of the Federal Reserve and the Treasury and everybody encouraged it.”
He adds that these unfunded liabilities, which will surface over the next 20 to 30 years, do not deserve a AAA rating.
Faber believes the U.S. budget deficit is going to stay at or above $1 trillion level because the government needs to print money in order to meet all the obligations they’ve made to rescue the financial system.
“U.S. government bonds should be rated as a junk bond,” quips Faber.
This article was posted: Tuesday, October 14, 2008 at 3:51 am