The government debt in the US will escalate substantially Marc Faber

Marc Faber on CNBC TV18 Oct 1st 2009

In an interview with CNBC TV18 Marc Faber said that he does not see any recovery in the US despite the fact that the US dollar may rally for a couple months ahead , but on the long term the situation looks grim for the US economy and dollar :
"Basically, we have had huge fiscal stimulus packages and we had quantitative easing in basically all countries around the world. So asset prices have recovered strongly after March 6 this year, with stocks rising, commodity prices rising and the dollar weakening again and each time the dollar weakens it is kind of a symptom of some inflation in the system and excess liquidity building up. What we have is large cash positions around the world and zero interest rates and also the policy by the Fed to keep the matter very low level for a very long time as was the case of 2001. With this in mind, money goes out of cash balances into something, either consumption or into some kind of assets like equities or commodities or bonds or art or real estate."


and he added :


"I don't think so. I think we have to distinguish between short-term interest rates and long-term interest rates. Long-term interest rates, the Federal Reserve does not really control them in the long run. Temporary they can somewhat control them through quantitative easing and through the purchases of 10 year bonds, 7 year bonds, 30 year bonds but what they control are the short-term interest rates in other words, the Fed fund rates. Reading through the literature and through the speeches that are being given by Mr Ben Bernanke, my impression is that the short-term interest rates will stay long for a very long time. In America the fiscal deficit this year will be around USD 2 trillion and I do not think they can cut the fiscal deficit next year because if they cut it, it will have a negative impact on the economy. So I rather think that the fiscal deficit will stay at this level or in my opinion actually even increase. That will lead the Fed to keep interest rates artificially low because should they increase short-term rates meaningfully then the cost of servicing the government debt in the US will escalate substantially. So I think as far as the eye can see, monetary policies in the US will stay expansionary."