Peter Schiff: "At some point, the dollar has to give"
While the U.S Federal Reserve claims it needs to keep interest rates near zero to help the economy, renowned economist Peter Schiff says there's another reason.
According to Schiff, the Fed has little choice: If rates began to climb, the interest payments on the ballooning federal debt would explode making annual budget deficits far worse.
"We're now so addicted to debt that the highest rate we can afford is zero," Schiff, the CEO and chief global strategist of Euro Pacific Capital, told Casey Research chairman Doug Casey in a video interview published today.
"We pay about $300 billion a year right now in interest on a $16.5 trillion debt," Schiff explained. "What if, in two or three years -- and the debt is $20 trillion -- what happens if interest rates are 5%? Well, that's $1 trillion a year in interest payments."
This scenario is not at all far-fetched; the historic norm for interest rates is just below 5%, and rates in the early 1980s were triple that.
Another reason the Fed fears higher rates, Schiff said, is that it would probably bankrupt most of the "too-big-to-fail" banks that the government bailed out back in 2008.
"The only justification for keeping rates so low is that the Fed knows any increase in rates will collapse this phony economy and we'll be right back in recession," Schiff said.Read More...
Peter Schiff: Thanks to QE3, We're All Screwed
U.S. Federal Reserve policies like QE3 are building up to an inflationary catastrophe, says economic expert Peter Schiff.
Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, made his remarks about the dire consequences of excessive quantitative easing in a video interview on Yahoo! Finance's Breakout.
Schiff said he has dubbed the Fed's third round of bond-buying, known as QE3, "Operation Screw" because "everybody's pretty much screwed if they own dollars."
He warned that the Fed can only continue its policies of buying U.S. Treasuries and mortgages by printing more money, and printing more money inevitably will drive much higher inflation.
"The Fed is now promising to print $85 billion a month," Schiff said. "That's over a trillion dollars a year. And I think that's just their opening bid."
Peter Schiff: If You Think the Fiscal Cliff is Bad, Just Wait
Forget the fiscal cliff, says economic expert Peter Schiff. This country faces a far bigger financial crisis.
While the failure of Congress to act to prevent or mitigate the fiscal cliff - the combination of tax increases and federal spending cuts due to hit on Jan. 2, 2013 - would slam the economy hard, Schiff says it would be preferable to the crash he foresees.
"It's not because we go over this phony fiscal cliff, it's probably because we don't go over that one because the government cancels the spending cuts, cancels the tax hikes, and instead we end up going over the real fiscal cliff further down the road," Schiff told Breakout recently.
Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, said the real threat to the U.S. economy is "where interest rates spike and we can no longer afford to pay the interest on the enormous amount of debt we have."
He also blamed the Federal Reserve's zero interest rate policy for making government borrowing too easy.
The national debt, fueled by annual budget deficits of more than $1trillion, crossed the $16 trillion threshold at the end of August. At current spending rates it will hit $17 trillion next June.
"We can't keep interest rates artificially low to stimulate the economy because it's the low interest rates that are the source of the problem," Schiff said.
That about a third of the U.S. debt is held by foreign countries such as China and Japan is a ticking time bomb.
"In fact, the real fiscal cliff comes when our creditors want their money back, and we don't have it," he said.
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Is the Government Rehabilitating the Economy or Delaying the Inevitable?
While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy that’s deteriorating right before our eyes.
These myopic commentators seem to be simply moving past the now almost-universally held conclusion that, before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I, too, would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path.
The U.S. Bureau of Economic Analysis just reported that consumer spending as a percentage of U.S. gross domestic product (GDP) has risen to 71%, a post-World War II record. This level is notably higher than other wealthy industrialized countries, and vastly higher than the levels sustained by China and other emerging economies. At the same time, our industrial output is contracting, our trade deficit is expanding once again (after contracting earlier in the year), and our savings rate is plummeting (after an early year surge). Read More...