Peter Schiff: The US Government Needs to Get Out of the Way (Video)
As we reported last week, China is dumping US debt. China’s holdings of US Treasuries fell for the third consecutive month in August. The Chinese shed another $6 billion in US debt, dropping its total holdings to $1.165 trillion. Over the last year, China’s holdings of Treasury bonds fell by $37 billion year-on-year.
But China has debt problems of its own. Local Chinese governments have reportedly piled up about $5.8 billion in debt. An S&P analyst called Chinese debt “an iceberg with titanic credit risks.”
Peter Schiff recently appeared on RT to talk about the US and Chinese debt.
The host kicked off the segment asking Peter where he thought the US economy would be if it weren’t for the Trump tax cuts.
Well, we may already be in recession. I think Trump was right; the economy was headed for a crash before he was elected. But all he did was kick the can down the road and I think we’re headed for a bigger crash now.”
Peter noted the US debt is growing even faster than it appears because the government doesn’t count a lot of spending in its official deficit number. While the 2018 fiscal deficit came in at $779 billion, the national debt grew by $1.27 trillion.
So, it actually borrows about 60% more than it’s pretending to borrow. So, the problem is far greater. The media is actually sugar-coating it. There’s a lot of debt here. And this is during a supposed recovery when we’re at peace. Imagine the enormity of the debts during the next recession. And one’s coming a lot sooner than people think. So, these deficits could skyrocket over $2 trillion per year.”
And this doesn’t even include all of the unfunded liabilities such as Social Security, Medicare and other obligations. As we reported over the summer, Social Security and Medicare are going broke even faster than expected. When you factor all unfunded liabilities in, we’re looking at debt north of $100 trillion down the road.
And the other problem is — the other side of the balance sheet — nobody in America saves any money. I mean, we have no savings. People live paycheck to paycheck. So, at least China you have a high personal savings rate. So, debt is not as big a problem if you have savings to offset it. But in America, we need to get money from the rest of the world. We need the Chinese to lend us their savings because we don’t have any of our own. And the alternative is we just print the money; we go back to quantitative easing, which is where I think we’re headed. So, the result of this ends up being a dollar crisis, where it’s the US dollar collapsing because of how many the Federal Reserve has to print to buy up all the bonds that the Chinese and everybody else no longer want.”
As the other guest on the show, Caleb Maupin, noted, growth based on debt isn’t real economic growth.
The conversation turned to infrastructure spending. Peter was asked if it would have been better than tax cuts. Peter pointed out that infrastructure is only beneficial if it’s actually necessary. Government doesn’t have a good track record of deciding what is necessary. We’ve all heard about “bridges to nowhere.”
What I want is the US government to get out of the way so that profit-seeking entrepreneurs can effectively allocate resources in a way that is going to grow the economy. But when you’re running these massive deficits, whether it’s to pay for government spending or tax cuts … because we can’t cut taxes and simultaneously grow government because government has to be paid for. Taxes are just how we pay for government. But if we don’t pay for it with taxes, we’re going to pay for it through debt or inflation, which is just another form of tax, only it’s more insidious, and ultimately more damaging.”
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