US austerity plan fails to deal with core debt issue: expert
The United States' emergency austerity plan does not address its fundamental debt problems and the country's debt levels are expected to continue mounting, financial expert Marc Faber warned Saturday.
In an interview with Swiss newspaper Le Temps published after Standard and Poor’s downgraded its assessment of the US economy to AA+, Faber said that the United States “no longer deserves an AAA rating.”
The recent agreement between Republicans and Democrats to raise Washington’s $14.3 trillion debt limit by up to $2.4 trillion while cutting at least $2.1 trillion in government spending over a decade, was “not really a deal,” he added.
“The two parties have agreed to a certain extent to raise the debt ceiling, but there aren’t many details on this operation,” said Faber, who publishes the Gloom, Boom and Doom report.
“The fundamental problem of spending cuts was not taken into account, since no change is expected until 2013,” he said, noting that the largest state expenditures of social security and healthcare costs would not be affected.
“As a result, US debt continues to grow. If the economy slows as I think it would, the country will record a fiscal deficit of $1.7 trillion next year.
“The following year would be more of the same, and government debt, in proportion to gross domestic product, will continue to grow to the point where, like Greece, the assessment of the solvency of the country will be revised downwards.”
The financial expert was also pessimistic about the prospects for the dollar.
“I have always believed that the final value of the dollar is zero, because the government, the Treasury and the Federal Reserve have no interest in keeping a strong dollar,” he said.
“The end of the dollar would not happen tomorrow, it will be gradual,” said Faber.
Asked if he felt the same about the euro, Faber said he had “no idea, because that is about a political decision.”
“As long as Germany is willing to support the European Central Bank and to finance the stability fund, the euro will survive,” he said.
Faber also believed that it was better to allow heavily-indebted states like Greece to go bankrupt, even if it means that this would drag down some banks too.
“Let these establishments default but protect the savers. This choice is much better than to save the banks with taxpayers’ money and to realise two years later that the bankers are receiving record bonuses.
“The bankers must be punished,” he stressed.
“Has saving the banks in the United States brought anything to the economy? No,” said Faber.