Wake-Up, People of the World

– World is “over-indebted”, Mark Faber tells Bloomberg

– “Defaults will follow or they will have to create very high inflation rates”

– Greece will leave EU or Troika will take 50% “haircut”

– Leaving EU may be Greece’s best option

– Anti-Austerity groups in other countries will be bolstered by Greek defiance – may have negative impact on bonds

– Recent stock market weakness due to weak global economy rather than Greece

– Chinese economy weak, markets could fall further

– Central banks to use Greece and China as excuse to maintain loose policy

– Faber is long-time advocate of holding physical gold

“Wake up, people of the world and investors! Greece will come to your neighbourhood very soon, maybe not this year but next year or whenever…because the world is over-indebted and defaults will follow or they’ll have to create very high inflation rates”.

This was Mark Faber’s message to Bloomberg viewers in an interview yesterday.

In the course of the interview the editor of the Gloom, Doom and Boom report said that if Greece were to leave the EU it would “suffer badly for a few months, maybe longer” due to a shortage in cash but that ultimately it might be in its interest to do so because they would be “basically debt free”. The economy would crash “but the economy has already plunged as a result of the measures and the over indebtedness they have”.

The alternative, as he sees it, is that the Troika will have to make a significant compromise. “Tsipras has proposed a haircut of something like 30%. I don’t think that’s enough, i think they will need a haircut of at least 50%”, he said. He believes that there should be debt forgiveness but the “bloated” Greek government needs to be trimmed or the problem will resurface in the future.

Bonds of weaker nations in Europe have weakened following the Greek referendum because it is believed anti-austerity groups in Spain, Italy and Portugal will be emboldened by the Greek display of defiance. “Greece may be the first country to actually oppose the measures imposed on them by the ECB, by the EU and also by the IMF and more countries may follow”. He points out that “where you have a borrower you also have a lender” and criticises the ECB’s reckless lending to Greece “partly to bail out its own banks”.

He also points out that he thinks recent stock market weakness is more a function of a weakening global economy, particularly in China, than events in Greece. Chinese markets have plunged over 30% since June 12th having doubled in the preceding year. Faber predicted a 40% correction prior to the crash and still holds that view. He believes export figures from its local trading partners into China indicate that Chinese economic growth is now around 4% – “but that’s the maximum”.

He believes that the Fed and the ECB will use the problems in Greece and China to delay raising rates and to print “even more money” respectively although he does not see their actions as having any benign effect on the real economy.

Marc Faber is a long-time advocate of owning physical gold which action he describes as being “your own central bank”. If his predictions are correct – that defaults and/or very high inflation are on the horizon globally an allocation to gold is academically proven to serve as vital financial insurance.

Reprinted with permission from GoldCore.