Peter Schiff Talks U.S. Debt ~ market folly

Friday, January 30, 2009

Peter Schiff Talks U.S. Debt

Peter Schiff recently wrote a piece for the Wall Street Journal, entitled, 'The World Won't Buy Unlimited U.S. Debt.' He writes,

"These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

As absurd as this may appear on the surface, it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on. Their confidence is derived from the fact that the arrangement has gone on for some time, and that our creditors would be unwilling to face the economic turbulence that would result from an interruption of the status quo.

But just because the game has lasted thus far does not mean that they will continue playing it indefinitely. Thanks to projected huge deficits, the U.S. government is severely raising the stakes. At the same time, the global economic contraction will make larger Treasury purchases by foreign central banks both economically and politically more difficult."

We've covered Schiff's thoughs on the blog numerous times before. He talked about the treasury bubble here, as well as the current crisis and gold here. Also, interestingly enough, we've noted that there seems to be a grassroots campaign to try and convince Schiff to run for U.S. Senator (CT) in 2010:

You can read his WSJ piece in its entirety here.

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