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Peter Schiff: US Government Is Running World’s Largest Ponzi Scheme, Raising Debt Ceiling Proves It

Peter Schiff: US Government Is Running World’s Largest Ponzi Scheme, Raising Debt Ceiling Proves It

Debt ceiling Ponzi

Peter Schiff, screenshot from The Peter Schiff Show, YouTube / The Capitol building, Washington, D.C., Jan. 4, 2023. (AP/Alex Brandon)

The U.S. reached its debt ceiling of $31.4 trillion today, Jan. 19, Treasury Secretary Janet L. Yellen said in a letter to Congress, which is responsible for lifting or suspending the borrowing cap with a simple majority in both the House and the Senate.

Elected officials must decide whether the U.S. can borrow more money to pay its bills or fail to meet its financial obligations and possibly default on its debt.

The U.S. borrows huge sums of money by selling Treasury bonds to investors around the world and uses those funds to meet financial obligations such as paying military salaries, Social Security and Medicare benefits, and interest on the national debt. Once the U.S. hits the cap, the Treasury resorts to “extraordinary measures” — suspending some investments and exchanging different types of debt — to try to stay beneath the cap. Eventually, the U.S. must either borrow more money to pay its bills or abandon its financial obligations.

By raising the debt ceiling, the U.S. government will be essentially admitting it is running a Ponzi scheme, according to economist Peter Schiff, a known opponent of debt-fueled growth policies who predicted the 2008 financial crisis.

“The U.S. Treas. Sec. has admitted the only way to avoid a default on the National Debt is to raise the #DebtCeiling so the Govt. can borrow from new lenders to repay existing lenders,” Schiff tweeted on Jan. 16. “This amounts to an official admission that the U.S. is running the world’s largest Ponzi scheme.”

A Ponzi scheme is an investment fraud that pays older investors with funds collected from new investors. It’s named after Charles Ponzi who promised investors in the 1920s a 50-percent return within a few months for what he claimed was an investment in international mail coupons. Ponzi schemes promise high returns with little or no risk. They need a constant flow of new money to survive. When new investors dry up or existing investors cash out en masse, Ponzi schemes tend to collapse.

A gold bug and Bitcoin skeptic, Schiff is known for his bearish views on the dollar and dollar-denominated assets. He is one of the few widely known investment professionals who spoke publicly about the 2008 financial crisis before it began. An opponent of debt-fueled growth policies, he is known for advocating for emerging market and commodity-focused investments.

Schiff talked in September about the massive national debt on his podcast, “The Peter Schiff Show” and wrote about it in an Oct. 6, 2022 blog.

“Federal Reserve Chairman Jerome Powell knew fighting inflation would cause big problems in a bubble economy loaded up with debt,” Schiff said. “He put it off as long as he could, calling inflation ‘transitory.’ But once inflation became a huge problem, the central bank had no choice but to get into the fight and start tightening monetary policy. The problem is, the Fed’s plan won’t work. And one reason it won’t work is the massive national debt.”

The federal government already spends about $500 billion a year paying interest on the $31 trillion debt, Schiff added. He predicted that within a year, the U.S. could be paying $1 trillion per year on interest alone.

“Four percent of the $31 trillion debt is $1.25 trillion. The average maturity on the debt is under five years. A third of the debt will mature in the next year. Meanwhile, the debt continues to skyrocket. The national debt grew by $1 trillion in just eight months even with pandemic spending programs winding down.”

National Economic Council Director Brian Deese said Thursday that even just the “specter that the United States might not honor its obligations does damage to the economy.” 

Last raised in December 2021, the debt ceiling has become a way for Congress to restrict the growth of borrowing, turning it into a political football in recent decades, Tami Luhby reported for CNN.

The debt ceiling has never meaningfully restrained borrowing and spending, Schiff said in a Jan. 18 blog. Why doesn’t Congress just get rid of it? Two reasons.

First, “doing away with the debt ceiling would expose America’s fiscal irresponsibility to the world … the debt ceiling creates the illusion of responsibility. It’s like a magic trick,” Schiff said. “It makes us feel good. The debt ceiling … allows Americans to feel like their ‘representatives’ are acting responsibly.”

Second, Schiff said, “the debt ceiling is ready-made for political theater. And there’s nothing politicians love more than political theater … So, grab a chair. Pop some popcorn. And enjoy the show.”

Schiff wrote the best-selling book, “Crash Proof: How to Profit from the Coming Economic Collapse” in 2007 and “The Real Crash: America’s Coming Bankruptcy” in 2014. A financial commentator, he is the CEO and chief global strategist of broker-dealer Euro Pacific Capital Inc. in Westport, Connecticut. He founded SchiffGold, a precious metals dealer, in 2010. He is also involved in other financial services companies including Euro Pacific Asset Management, an independent investment advisor, and Euro Pacific Bank, a full-reserve bank.