The Debt Cliff

Back in September financial poobah Peter Schiff wrote an oped titled: "The real fiscal cliff". In it he frames our current national monetary crisis in this way:

"The buyers, who legitimately can be described as “investors,” extend credit to the United States at such generous terms largely because of America’s size, power and perceived economic unassailability. If those perceptions change, 5 percent could quickly become a floor, not a ceiling, for interest rates. Given that America’s balance sheet bears more than a casual resemblance to those of both Spain and Italy, it should not be radical to assume that one day we will be asked to pay the same amount as they do for the money we borrow. The brutal truth is that 6 percent or 7 percent interest rates will force the government to either slash federal spending across the board (including cuts to politically sensitive entitlements), raise middle-class taxes significantly, default on the debt, or hit everyone with the sustained impact of high inflation. Now that’s a real fiscal cliff."

I suggest that you read the whole article here. I agree with Schiff when he says:

"By foolishly borrowing so heavily when interest rates are low, our government is driving us toward this cliff with its eyes firmly glued to the rearview mirror. Most economists downplay debt-servicing concerns with assertions that we have entered a new era of permanently low interest rates. This is a dangerously naive idea."

1 comment:

  1. Schiff has also opined recently ...

    "Our economy is so screwed up from years and years and years of bad monetary and fiscal policy that it's going to be painful to correct that problem. But we have to do it," Schiff said. "We can't keep avoiding the pain and in the process making the problem worse, because then we're just going to have even more pain in the future to fix an even bigger problem."


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