Marc Faber Likes Keynesianism? Economy Weaking in U.S. (and World), Fed Still Buying Treasuries, and Missing Money in Iraq as High as $18 Billion

Great interview of Marc Faber by Anthony Wile of The Daily Bell came out yesterday.  In it, Faber makes his usual predictions of coming financial calamity through his contrarian and witty style and but actually slightly endorses a not-so important part of Keynesian economic theory:

Daily Bell: Would you say you are an Austrian when it comes to economics?
Marc Faber: Yes, but I think we can't be overly dogmatic in economics because certain things may work for one system and other things may not work in another system and so forth. Economics is a very complex system and is essentially human life and the behavior of humans. So to build one theory around it is probably wrong. Sure I am leaning more to the Austrian school, particularly when it comes to debt cycles. But I have sympathy for the Keynesian approach if, and this is a big question, IF it is implemented properly.
In other words, the business cycles will lead to excursions of prosperity and during these excursions into prosperity the system should build up reserves. Then when the excursion in depressions occurs below the trend line, use these reserves. But the problem with Keynesian economics has been that in the excursions into depression the reserves were always used but were never accumulated in the periods of prosperity, and so you build up larger and larger government debt and print more money; that is the problem. It's the problem of democracy.

Here is Faber on one world government:

Daily Bell: Is there a cartel of wealthy banking families that runs the world? Are they located in the City of London? Do they by any chance seek one world government?
Marc Faber: I don't know. I think there are some very important banking dynasties for sure. People sometimes refer to them as the Rothschilds and that they have benefitted from wars – so I am not sure I would want a one-world government. When I compare my life today to the life I had in the 50s and 60s, we have much less freedom. Everything is regulated as the governments have become like a cancer; they keep expanding and regulating and dictating everything. In my opinion, this creates not a very favorable environment in the Western world.

And of course the mention of hypefinflation:

Daily Bell: You said in 2007 there was going to be a crash, but you also said US equities were only moderately overvalued. Would you tell us more about that?
Marc Faber: The market based on price earnings was not incredibly over valued. What concerned me was the over-valuation in real estate and in financial stocks. The overall market wasn't selling at 80 times earnings, like Japan in '89 or the NASDAQ in March 2000. From that point of view, there wasn't a tremendous over-valuation. What was happening in 2008 was that there was an earnings collapse in the financial sector.
The financial sector accounted at the peak in 2007 for over 40% of S&P earnings and obviously the S&P earnings collapsed. 2008 was not really a financial crisis and we have come out of it. In 2007, there wasn't a huge over-valuation, but there was a concentration of money in the financial sector.
Daily Bell: Do you still expect hyperinflation?
Marc Faber: In my view, the debt level, especially in the US, if we include the unfunded liabilities of Medicare, Medicaid, Social Security and these entitlement programs, is beyond repair. And this will necessitate printing more money. Also, in my view, there is no real political will to address the issues, because who ever would cut entitlements, will not be re-elected. So we have a tyranny of the masses.

The whole interview is worth reading and is highly recommended, much like every interview Marc Faber does.  I would even say that this is the case even if you disagree with him, which I think is difficult considering his track record.

The general consensus around the financial blogosphere is that the U.S. economy is slowing down:

(Bloomberg) Consumer spending unexpectedly stagnated in May as employment prospects dimmed and rising inflation caused Americans to cut back.
Purchases were little changed, the weakest outcome since June 2010, after a revised 0.3 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News called for a 0.1 percent gain. Prices excluding food and energy rose more than forecast.

And from Yahoo! Finance:

Economists note that the slowdown in spending was partly the result of temporary factors.
Auto purchases fell sharply in May. That lowered spending on long-lasting manufactured goods 1.5 percent, the steepest drop since September 2009. Dealers had limited supplies of many cars because of a parts shortage stemming from the crisis in Japan. U.S. factories are expected to begin producing more cars once Japan's factories resume more normal operations.
Gas prices peaked in early May at a national average of nearly $4 per gallon. Since then, they have dropped to a national average of $3.57 per gallon, according to AAA's daily fuel gauge. Cheaper gas will likely allow consumers to spend more freely this summer and fall. That should boost growth in the second half of the year.

Like always, Mish puts the notion that the economy may recover faster in the second half of the year to rest:

Are economists ever pessimistic? The idea that growth will pick up because of falling gasoline prices is complete silliness. Gasoline prices are falling because growth is slowing.

Moreover, in about 2 months you will be able to toss that "auto parts shortage" theory in the ashcan where it belongs. 

Economic growth isn't slowing in just the U.S. though, see Spain and China:

(Bloomberg) Spanish banks have 50 billion euros ($70.7 billion) in unrecognised problematic real estate assets, El Confidencial reported, citing a report by the Boston Consulting Group.
The consulting group estimates that Spanish banks need between 20 billion euros and 30 billion euros in additional capital and that Spain’s bank rescue fund, known as the FROB, could end up taking over 20 percent of the banking industry, El Confidencial added.

Hiding bad real estate assets?  Sound familiar?  China has a similar story:

China’s first audit of local government debt found liabilities of 10.7 trillion yuan ($1.7 trillion) at the end of last year and warned of repayment risks, including a reliance on land sales.
Financing vehicles set up by regional authorities already had more than 8 billion yuan in overdue debt, while more than 5 percent of such companies used new bank borrowing to repay loans, according to the audit, posted on the National Audit Office’s website and submitted to China’s cabinet.

So what's the solution to a slowing economy as QE2 is coming to an end?  Print more money of course!

The Federal Reserve will remain the biggest buyer of Treasuries, even after the second round of quantitative easing ends this week, as the central bank uses its $2.86 trillion balance sheet to keep interest rates low.
While the $600 billion purchase program, known as QE2, winds down, the Fed said June 22 that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months without adding money to the financial system.

Inflationary expectations continue as Mihir P. Worah from PIMCO jumps in the ring:

• ​We expect commodity prices to be generally rising going forward, though with volatility and differentiation among commodities.
• Emerging markets going through a particularly commodity and energy intensive phase of growth may affect what developed-world consumers pay for commodities.
• Currencies are another factor. If developed-world policymakers attempt to make their economies more competitive via a cheaper currency, that could lead to higher inflation for those that are net importers.

 And how could I talk about the slowing global economy without mentioning Greece?  Finally even some European leaders are starting to doubt the garbage coming out of ECB Prez Jean Claude Trichet:

Greek politicians will vote on a radical €28.4bn (£25.2bn) austerity package in the coming days that they must pass if the country is to receive the vital fifth tranche of a €110bn bail-out agreed last year. The outcome is expected to go down to the wire as the ruling party's slim majority is pushed to the limit by the opposition's refusal to support the deal, a wave of national strikes, and another round of public protests.

Werner Faymann, the Austrian Chancellor, said on Sunday he "can't rule out" a Greek default and Wolfgang Schaeuble, the German finance minister, revealed that Europe is preparing "for the worst".

"We are doing everything we can to prevent a perilous escalation for Europe but must at the same time be prepared for the worst," Mr Schaeuble said. "If things turn out differently than everyone expects that would of course be a major breakdown. But even in 2008, the world was able to take coordinated action agai-nst a global and unpredictable financial market crisis."

As Greece starts trying to pass new austerity measures, here is what the current makeup of their parliament looks like:

Call me naive, but I was seriously surprised at how many members of the "communist" party are in Greece's parliament.  Somehow a degree of the sympathy I had for those protesting the austerity measures has diminished a bit.

Update- Glenn Beck finally praising Ron Paul, still not sure if it's a good thing: