Sovereign Debt: The Next Crisis - Marc Faber

Posted Jan 13, 2010 01:00pm EST

After every financial crisis there's a sovereign debt crisis, Marc Faber says. Countries that borrowed too much during the boom times start struggling to pay their competitors back, and eventually some of them default.

The countries most likely to blow up this time around are the "PIIGS": Portugal, Ireland, Italy, Greece, and Spain. One ore more of them, Faber says, will likely default in the next couple of years. And, that could result in the death of the Euro currency.

Longer-term, Faber says, Japan and the US are in line for the same fate.

The US crisis won't hit us this year or next year. But within 5-10 years, the United States will be forced to quietly default on its debt, most likely by printing money and destroying the value of the currency.

The main problem comes down to two things: 1) ballooning debts and 2) future interest costs.

As these charts from Faber's Gloom, Boom, And Doom Report show, in the past decade, the U.S. government's total debt and liabilities have gone through the roof, especially when Fannie, Freddie, Medicare, and Social Security are taken into account. This trend is unsustainable, and it will correct itself only through a rapid acceleration of economic growth and tax revenues, a new-found financial discipline, or a crisis--or a combination of all three.

The second problem is interest costs. Right now, the government's debt and deficits aren't creating an undue burden because the government can borrow so cheaply. Eventually, however, as the country's financial situation gets weaker, interest rates will likely rise, and our interest costs will go through the roof.

According to Faber, our annual interest costs currently amount to 12% of the government's tax revenue. Within five years, Faber estimates, these costs will soar to 35% of tax revenue. This will force the government to cut spending (unlikely) and/or frantically print money.

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[RCinPAWA]

It's always darkest just before it gets pitch black.

[DolphinFilms]

Marc is awesome. I love how he gives the doom (hyperinflation) and gloom (war... WW3?) scenario so matter-of-factly.

[MorpheusX001]

WAKE THE HELL UP AMERICA! --- Join the Revolution

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Read “Common Sense 3.1” at ( revolution2.osixs.org )

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We don’t have to live like this anymore. "Spread the News"

FIGHT THE CAUSE - NOT THE SYMPTOM

[xadam2dudex]

to solve the problem..end the central banks who made the problem by their very existence...repeal the Federal Reserve Act RAISE TAXES ON THE RICH....why didn't he say that instead of cut medicare etc ...since low taxes on the rich and corporations is a big part of the problem ( most large US corporations don't pay taxes )

[blaknoizee]

It weird, how all this can happen and it is none of the "working class" folks fault, but we take the blame and the burden by blaming one-another.

[Silicondoc]

He's telling all of us what is already occurring - and we have these COMMUNIST LIBS who have pushed this crap since the 68'er democratic revolution to thank. Anyone ever DREAM it would be the GD DEMONRATS that do the big business corporation WORLDWIDE MONEY SWINDLING?! NO, you were told it's evil rethugs. THE DEMS LIED!

[jayangli]

they are already in three wars, just going to get worse. If you think about it, the situation is worse than it was during 911 and Iraq

[daviddalbylive]

Gloom, Doom and Boom ... we had the Boom and now we have the Gloom .... so prepare for the Doom cos it will be SUDDEN and SHOCKING. Disbelief will be on everyones face until the reality sinks in and then all hell will break lose. Inflation nation fiat money is dead, long live fiat money.

[TheBlitz1]

your country would have to be dumb as shit to go to war WHILE hyperinflation is occuring... that would be just comical

[uturniaphobic]

Sovereign Debt, Fair Judge, Honest Lawyer, Working stiff, all these are good examples of oxymoron

[mkc1979]

@benzo771 i think you're referring to george soros - different people.