Peter Schiff: A Massive Fiscal Time Bomb
The comments below are an edited and abridged synopsis of an article by Tyler Durden
Fed Chair Jay Powell knew fighting inflation would cause problems in the US economy. He delayed as long as he could, but eventually the central bank had no choice but to start tightening monetary policy. But the Fed’s plan won’t work because of the massive national debt.
The federal government already spends about $500 billion per year on interest payments on the $31-trillion debt. Peter Schiff, CEO of Euro Pacific Capital Inc., speculates that in 10 years, the US government could be paying $1 trillion per year on interest alone.
Where is the government going to get the money to pay for this? It will cost something like 30% of all tax revenue just to pay the interest on the debt. Huge interest payments will mean even more borrowing.
For years, the government justified borrowing money because interest rates were low. Schiff said that argument might have flown if the government was locking in the low rates for 30 years, but not when the Treasury was rolling over the debt every 30 days, 90 days, or even every year.
The Fed deliberately created inflation since 2008 to postpone the pain. It put QE in place and kept interest rates at zero because it did not want a recession; it wanted to prop up stock and real estate prices. So it allowed QE, low interest rates and creeping inflation. Now there’s a huge inflation problem, and the Fed has to fight a monster that it created.
The US government can’t service its debt, much less maintain its borrowing and spending without the Fed creating inflation, and that’s why this inflation fight is doomed to fail.