Massive Government Debt Has Consequences; The Worst Is Yet to Come (Video)
In his most recent interview with Douglass Goldstein, Peter Schiff talked about the massive US debt and its impact on the US economy.
Peter took issue with Paul Krugman’s view that the US government can simply keep borrowing money endlessly, pointing out that it already has more of $100 trillion in liabilities. Peter argues that not only does this bode ill for the future, we’re already reaping the consequences.
Because interest rates are so low, and because nobody is saving, and because the Fed’s debt monetization, otherwise known as QE, has enabled such an enormous growth in the size of government and the burden that that places on our economy – the economy is very weak. We don’t produce; we don’t create good-paying jobs; so the standard of living for American people keeps falling as the cost of living keeps rising. So, we’re already dealing with the consequences of the debt.”
Peter goes on to prescribe the solution. Many may find it difficult to accept, but as Peter says, you can’t just keep giving the addict more drugs.
Highlights from the interview:
“What’s amazing is that they can borrow this money in the first place, because it’s impossible to ever pay it back. So normally, if you’re lending somebody money, being repaid is the most important element of the deal. You’re not going to loan money unless the person borrowing it has the capability of repaying the loan, and the United States government has absolutely no ability to repay the debt. But people don’t care, or they haven’t bothered to think about it.”
“I think you have to flunk a test in basic economics before they can even consider you for a Nobel Prize in Economics. Krugman has no idea what he is talking about…Sure, they can print money as long as they are willing to print it into oblivion and wipe everybody out with runaway inflation, but to repay the debt in real terms is impossible. But Krugman doesn’t consider any of this.”
“Think about this…the debt will have doubled under Obama. So he will have added more debt than all the presidents who preceded him – from George Washington to George Bush. Assuming that happens again, if that pattern continues, Bush doubled the debt and then Obama doubled the debt, if the next president doubles the debt – then you are talking about taking the debt form $20 trillion to $40 trillion.”
“The Fed keeps talking about raising interest rates. But the reason they talk about it they can’t actually do it. But they don’t want to admit that, so they keep talking about raising rates as if they were really considering it, but they have to keep it at zero because we’re so broke. “
“Because interest rates are so low, and because nobody is saving, and because the Fed’s debt monetization, otherwise known as QE has enabled such an enormous growth in the size of government and the burden that that places on our economy – the economy is very weak. We don’t produce; we don’t create good-paying jobs; so the standard of living for American people keeps falling as the cost of living keeps rising. So, we’re already dealing with the consequences of the debt. “
“It’s going to produce a crisis where our creditors ultimately lose confidence in our ability to repay in money that still has value. So just like investors have lost confidence in Greece, or they’ve lost confidence in Puerto Rico, they’re going to lose confidence in the US and then we’re going to have a real crisis. We’re going to have a currency crisis, we’re going to have a sovereign debt crisis, and that is going to dwarf the financial crisis of 2008.”
“It’s going to be a crash. That’s why the (the Fed) doesn’t want to land.”
“I think if [the Fed]raises interest rates they are going to have to stop the pretense because I think we’ll be back in recession, and that really scares the Fed. The Fed doesn’t want to have to raise the rates slightly and then have to bring them immediately back to zero, and then launch QE4, because that will expose the Fed and expose the economy for what it is. We’re totally addicted to this cheap money and we can never take it away. In fact, I don’t even think 0% interest rates are low enough. We need negative rates. We need more QE, because that’s how addicted we are. That’s how much debt we have.”
“None of this is good. We need to go cold turkey. It’s not like an addict needs more drugs just because he’s built up a big drug habit and he has a high tolerance. I’m saying no, let’s go cold turkey. Let’s get off the drugs. Let’s go into monetary rehab – raise interest rates. Interest rates need to go up a lot, not just a little. But we have to be willing to deal with the consequences of higher interest rates, which are going to be defaults on a massive scale, because we have too much debt.”
“I don’t think the solution is higher taxes, but higher taxes would be better than these big deficits. I would argue that the damage to the economy would be less if the spending was being paid for with taxes…The only reason the voters are allowing the government to spend all of this money is because they think it’s free. They don’t think they have to pay for it. But I think if the voters were told, ‘Here’s how much these programs cost and this is how much we’re going to raise your taxes to pay for it,’ the voters would say, ‘No, I don’t want the programs.'”
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