Gloom Boom & Doom editor Dr. Marc Faber on ET Now India, December 2009. Marc Faber discusses a host of topics including the US in terms of the global economy, emerging economy investment ideas, commodities, global warming, alternative energy, inflation, deflation and depression. In the last of three videos, Dr. Faber discusses his investment theme and contrarian play for 2010. An interview well worth watching.
(Interview videos follow excerpts)

Marc Faber on Credit and Debt to GDP

After 2008, the private sector has reduced its leverage. In other words, consumer credit is declining and business credit is also declining, but this is being offset by a huge expansion of government credit. So total credit as a percent of the economy in the US is still growing. Now, officially, debt to GDP is 375%.

It was 186% when the US went into depression after 1929. In other words, we start with a much higher debt level. In 1929 we didn’t have social security and we didn’t have medicare and medicaid. If you add these unfunded liabilities of medicare and medicaid, and if you add Fannie Mae and Freddie Mac that have been taken over by the government, we’re talking about debt to GDP of over 600%.

In my opinion, in the long run, this is not sustainable. Something will give…..The problem will be, one day, when interest rates go up for whatever reason, maybe next year or three years time, the interest payments on the government debt will balloon. And, in say, seven years time, the interest payments on the US government’s debt will be between 35% to 50% of tax revenues, and then you are in a huge mess.

Marc Faber on the governments solutions and the end result:

To get out of this mess they will monetize. They will have all kinds of stimulus packages, they will lead to high inflation, and the standards of living of the average household will go down, and it will enrich a few people, the elite essentially on Wall Street. And then, to distract attention the US will escalate its war efforts and then will go into war in the world, and then the whole thing will collapse.

Marc Faber on 2010 Investment Themes:

Avoid US Government bonds. I think, as a contrarian, you really want the contrarian play. You should buy Japanese stocks and Japanese banks. This is the absolute contrarian play. Nobody is interested in Japan. All the funds have withdrawn money from Japan, they’ve given up on Japan. I guarantee you the economy won’t do well. Forget about the economy. The population is shrinking. But you can have an economy that doesn’t do well, but the companies do well. That is the big difference. And, I think the Japanese banks are very depressed. All the banks in Asia have actually recovered very strongly, but not the Japanese banks. As a contrarian play, I would look at that.

Watch Marc Faber on ET Now India (Part 1 of 3):

Watch Marc Faber on ET Now India (Part 2 of 3):

Watch Marc Faber on ET Now India (Part 3 of 3):