Whoa whoa whoa! Who let the crazy old dude in here?!?!
One of my favorite social phenomena is when an individual says something that goes completely against the beliefs of everyone surrounding him, and says it with gusto, not caring what anyone else thinks. After Randy, Ellen, and Kara have praised the performance of an American Idol contestant, Simon Cowell will say, "That was utterly ghastly" in a British accent, as boos from the crowd rain in. But he doesn't care.
Watch this clip in which Marc Faber drops a bomb about halfway through. The reaction from everyone else is as if he stood up, turned around, and dropped his pants.
This is the kind of contrarian strength that, IMO, is vital for successful investing. Watch also how at the end of the clip the CNBC interviewer tries to insult Faber's "doom and gloom". Had he done the slightest bit of research, he'd have known how successful Faber has been. I can only see one really bad trade among many more amazing calls in his 2008 and 2009 picks. Another interview with Faber on the same topic:
Why have I lately been obsessing about a USG default? Because smart people--contrarians with a track record--like Marc Faber believe it's going to happen. I see the numbers detailing the liabilities and I can't see a way out. People usually conclude, "Taxes will have to rise," but I think they underrate how mobile capital and labor are in this modern era, and how diminished the returns on increased tax rates will be. Additionally, tax hikes are politically unpopular, and spending cuts are disincentivized in a political market.
Just raise the age for Social Security benefits! Even if that was politically possible, that would only make a small dent in the unfunded liabilities.
The dynamic I see is a "point of no return" beyond which it is simply impossible to stop the trainwreck. If we had a benign dictator with absolute power, he might be able to cure our ills, but we live in a democracy, and there are too many factions to make a coherent plan. Obamacare was, IMO, the point of no return, though most likely, it will only accelerate what was already fated.
I don't think raising taxes will be effective (though I'm open to opposing thoughts). Hyperinflation could monetize the debt but I don't think that will change the fundamental dynamic of Western democracies; it will merely enable more entitlements and delay the crash into the future.