Faber argued that the political systems in place in the West would allow the debt burden to continue to expand. Under such a scenario of never-ending deficits, the Western world would rack up huge deficits.
One day, the system would break, he said.
“Eventually, you have either huge changes occurring in a peaceful fashion through reforms, or, usually, through revolutions,” he said. The U.S. is getting closer to such a revolution, he said, as is Europe.
“I think the timeframe would be within five to ten years you have a colossal mess … everywhere in the Western world,” Faber said. “I think the deficit here (in the U.S.) — irrespective of who is in the White House — will stay above a trillion dollars per annum for at least as far as the eye can see.”
Hardly news to anyone who has not been living in a Santorini limestone cave over the past 4 years, but as was reported overnight, official Euroarea debt to GDP (excluding trillions in contingent liabilities of course: these will only be considered in due course) rose in 2011 to a record 87.3% from 85.4% in 2010. What was also announced without much fanfare, yet oddly was not swept under the Friday 5 pm rug, was the news that Greek 2011 government debt/GDP was revised to 170.6% from 165.3%. That the number deteriorated in retrospect is no surprise: the issue is that increasingly all official economic recordkeeping in Europe has fallen under a Heisenberg blur: the second you spot a number it is no longer what it was a picosecond ago. The one agency that still does believe European numbers, a key reason why it has become a laughing stock even among “serious people”, is the IMF. As the chart below shows, even the IMF expects 2012 debt/GDP to keep rising into 2013, at which point it will gradually decline. Hint – it won’t, as the sovereign is now the only source of incremental leverage in a world that has run out of money good assets, and in which the consumers and corporations are receiving ever less real cashflows that can be levered on an unsecured basis (thanks to the Fed’s own real money dilutive policies).
Visually, courtesy of Bloomberg Brief: