Marc Faber : The US government bonds are already today junk bonds

Marc Faber - QE3, Inflation, Gold on Financial Sense July 15, 2011



Marc Faber : ...I think the deflationists they also have families they go shopping their families go shopping they pay educational cost they pay healthcare cost insurance cost and they see the fees on local government services increasing then I find it hard to believe that they will endorse the contest of deflation but obviously they may think that the economy may collapse and that as a result of that we may have deflation and that therefore you should buy long term US government bonds and my view is particularly in the deflationist scenario where you would have like Prechter said the Dow Jones below a thousand in that scenario you would not want to be in US government bonds and Cash for the simple reason that in that scenario the fiscal deficit in other words spending would exceed tax revenues even more than if you are actually optimistic about the economy , just consider if the Dow Jones went below a thousand what kind of an economic environment would we be in , we would be in a total credit collapse we would be in a total economic collapse and we would have a complete corporate profit collapse and in a corporate profit collapse and in an economic depression what would you thing happens to tax revenues , they would collapse as well and so the revenues of the treasury would decline very meaningfully and the fiscal deficit which is now running say optimistically said at one and a half trillion if you counted unfunded liabilities that are growing every year proof that the fiscal deficit is more likely two to two and half trillion dollars , but let's say it is one and a half trillion , if that happens the Dow Jones below a thousand corporate profit collapsing and revenues collapsing the fiscal deficit for sure will be two to three trillion dollars and in that environment the quality of credit of the US as was suggested by Moody's yesterday would decline and US government bonds which I think are already today junk bonds would go and yield much more than less than three percent that they are yielding at present time , so particularly in a deflationist scenario you do not want to be in a government bonds "....