The massive U.S. debt — $22 trillion and growing — is impossible to pay back and doomed to default, no matter what, according to Peter Schiff, the CEO and president of Euro Pacific Capital.
A Manhattan investor and precious metals dealer, Schiff is known for being bearish on the U.S. economy and the dollar.
Schiff thinks that the U.S.’s frivolous spending and money-printing is going to end in disaster, yet the mountain of debt racked up over the years seems to not be bothering politicians or market participants, Business Insider reported.
“We’re going to have to have a severe recession if we’re ever going to build a viable economy,” Schiff said on Off the Chain, a digital assets podcast. “This bubble won’t go on forever.”
When central banks cut rates and print money, they’re making the underlying economy sicker, even though it doesn’t look sicker, Schiff said. “That’s because they’re just measuring the spending that goes on and they’re ignoring the debt that’s behind it.”
But the debt has to be repaid. Low interest rates have helped defuse the U.S. problems so far, but that won’t last for long, strategist Peter Schiff told CNBC in January. “The debt bomb is going to explode.” At the time, he said low-interest rates had allowed the U.S. to service its debt, but repaying it was almost off the table. As interest rates rise and inflation grows, creditors are going to demand a higher premium, Schiff said.
Schiff’s tone has shifted. It’s off the table. He said he thinks the Federal Reserve’s affinity for printing money is going to result in runaway inflation and the result will be an exodus from the dollar.
“If the inflation rate is 4 percent or 5 percent, compounding — and you’re getting 0 percent interest on your dollars — that’s a one-way ticket to a disaster,” Schiff said. “I think inflation is going to break out all around the world.”
When Trump declared a national emergency in February 2019 to pay for the wall, Schiff declared the real national emergency was not the lack of a wall or failure to build the wall, but building up the national debt.
“When you talk about the national debt at $22 trillion, we’re talking about the tip of a huge iceberg, Schiff said during The Peter Schiff Podcast. “This is just the funded portion of the debt. This is where the U.S. sells a bond and somebody owns that bond.
“It doesn’t include liabilities like what the government owes for Social Security, or guaranteed bank deposits, or mortgages or student loans – that’s not there. Those are contingent liabilities. They’re just as real. They’re not even part of the national debt. So, when you look at all the liabilities that the U.S. government is on the hook for, you’re talking about well over $100 trillion – so $20 trillion is maybe 5 or 10 percent of the debt. But that debt is the real national emergency.”
Schiff predicted that the next recession will be worse than the Great Recession of 2008-2009. He’s been right before. He warned prior to 2008 that a collapse in housing prices would have devastating economic effects.
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“We are headed for a train wreck in this country because of the national debt,” Schiff said in his podcast in February. “What Trump has been building while he hasn’t been building a wall is he’s been building up the size of government, and he’s been building up the deficits that have been necessary to finance that government buildup. And yet nobody seems concerned.”
Trump didn’t mention the debt in the State of the Union address. When asked if Trump was going to talk about the deficit, Mick Mulvaney — the president’s acting White House Chief of Staff and director of the Office of Management and Budget — said: “nobody cares.”
People seem to think there’s no cause for concern about the debt because it has been growing for years and nothing has happened. Schiff begs to differ.
“Just because we haven’t suffered a crisis – yet- based on this debt doesn’t mean that one isn’t coming. In fact, there’s no way around it. It’s not a question of if, it’s a question of when, and I think when is a lot closer than a lot of people think.”