US Treasurys Are ‘Junk,’ Dollar Headed for
Collapse: Schiff
CNBC.com | May 01, 2012 | 11:07 PM EDT
The greenback and the U.S. bond market are
headed for a collapse as the U.S. Federal
Reserve loses the ability to service the nation’s
debt with “artificially low” interest rates, Peter
Schiff, CEO of Euro Pacific Capital told CNBC on
Wednesday.
“As far as I am concerned, U.S. Treasurys are
junk bonds,” Schiff said on CNBC Asia’s
“Squawk Box.” “And the only reason that the U.S.
government can pay the interest on the debt, and
I say ‘pay’ in quotes because we never pay our
bills. We borrow the money so we pretend to
pay, but the only reason we can do it is because
the Fed has got interest rates so artificially low.”
The Fed has been keeping rates on benchmark
10-year Treasurys low by purchasing bonds via
quantitative easing (QE) , and this will ultimately
be the U.S. economy’s “undoing,” Schiff said.
“Unfortunately, we are going to get more QE than
Rocky movies, because the only thing keeping
this phony economy going is this QE,” he said.
“And the minute you take it away, it’s going to
collapse.”
Schiff’s comments come after two Fed officials
warned on Tuesday that the U.S. could be
heading for a “fiscal cliff” at the end of the year if
mandated tax increases and spending cuts are
implemented. On the same day, fund manager
Bill Gross, who runs the world’s biggest bond
fund, told CNBC that the U.S. will face a
downgrade of its triple-A debt rating if it did not
fix its fiscal situation.
“It’s not just $15 trillion in terms of current debt,”
Gross said on CNBC’s “Street Signs.” “It’s
probably three to four times that in terms of
Medicare, Medicaid, of Social Security, in terms
of the present value.”
“So unless the U.S. begins to make some
inroads, and that’s called the structural deficit
that the (Congressional Budget Office) and the
(International Monetary Fund) basically identified
as perhaps six to seven to eight percent, greater
than any country other than Japan and the U.K.
Until we address that structural deficit, then yes,
we're headed to double-A territory,” he said.
Euro Pacific’s Schiff predicts weakness in the
U.S. dollar, which will put pressure on commodity
prices and fuel inflation . This will in turn force the
Fed to raise interest rates, he added.
“The Fed will not do it; the Fed knows the only
thing propping up our phony economy is zero
percent interest rates and quantitative easing.
And I think when the market figures this out, it’s
going to put even more pressure on the dollar,”
he said.
Schiff is a well-known bear who predicted in
2008 that the dollar will collapse amid
hyperinflation . That did not happen, and the
dollar strengthened against most major
currencies by the end of 2009.
Andrew Economos, managing director and head
of sovereign and institutional strategy at
JPMorgan Asset Management, said what the Fed
is trying to do is “buy time” by keeping credit
cheap and encouraging banks to lend.
“Look, I am not an apologist for the Fed, but at
the end of the day (Fed Chairman Ben)
Bernanke is doing the only thing that he can do,
which is buying time,” Economos said on CNBC’s
“The Call.” “And I think that buys us time to
rectify those structural problems the bears are
harping about. It allows corporates and
households to continue to deleverage and derisk
their own personal balance sheets.”
Collapse: Schiff
CNBC.com | May 01, 2012 | 11:07 PM EDT
The greenback and the U.S. bond market are
headed for a collapse as the U.S. Federal
Reserve loses the ability to service the nation’s
debt with “artificially low” interest rates, Peter
Schiff, CEO of Euro Pacific Capital told CNBC on
Wednesday.
“As far as I am concerned, U.S. Treasurys are
junk bonds,” Schiff said on CNBC Asia’s
“Squawk Box.” “And the only reason that the U.S.
government can pay the interest on the debt, and
I say ‘pay’ in quotes because we never pay our
bills. We borrow the money so we pretend to
pay, but the only reason we can do it is because
the Fed has got interest rates so artificially low.”
The Fed has been keeping rates on benchmark
10-year Treasurys low by purchasing bonds via
quantitative easing (QE) , and this will ultimately
be the U.S. economy’s “undoing,” Schiff said.
“Unfortunately, we are going to get more QE than
Rocky movies, because the only thing keeping
this phony economy going is this QE,” he said.
“And the minute you take it away, it’s going to
collapse.”
Schiff’s comments come after two Fed officials
warned on Tuesday that the U.S. could be
heading for a “fiscal cliff” at the end of the year if
mandated tax increases and spending cuts are
implemented. On the same day, fund manager
Bill Gross, who runs the world’s biggest bond
fund, told CNBC that the U.S. will face a
downgrade of its triple-A debt rating if it did not
fix its fiscal situation.
“It’s not just $15 trillion in terms of current debt,”
Gross said on CNBC’s “Street Signs.” “It’s
probably three to four times that in terms of
Medicare, Medicaid, of Social Security, in terms
of the present value.”
“So unless the U.S. begins to make some
inroads, and that’s called the structural deficit
that the (Congressional Budget Office) and the
(International Monetary Fund) basically identified
as perhaps six to seven to eight percent, greater
than any country other than Japan and the U.K.
Until we address that structural deficit, then yes,
we're headed to double-A territory,” he said.
Euro Pacific’s Schiff predicts weakness in the
U.S. dollar, which will put pressure on commodity
prices and fuel inflation . This will in turn force the
Fed to raise interest rates, he added.
“The Fed will not do it; the Fed knows the only
thing propping up our phony economy is zero
percent interest rates and quantitative easing.
And I think when the market figures this out, it’s
going to put even more pressure on the dollar,”
he said.
Schiff is a well-known bear who predicted in
2008 that the dollar will collapse amid
hyperinflation . That did not happen, and the
dollar strengthened against most major
currencies by the end of 2009.
Andrew Economos, managing director and head
of sovereign and institutional strategy at
JPMorgan Asset Management, said what the Fed
is trying to do is “buy time” by keeping credit
cheap and encouraging banks to lend.
“Look, I am not an apologist for the Fed, but at
the end of the day (Fed Chairman Ben)
Bernanke is doing the only thing that he can do,
which is buying time,” Economos said on CNBC’s
“The Call.” “And I think that buys us time to
rectify those structural problems the bears are
harping about. It allows corporates and
households to continue to deleverage and derisk
their own personal balance sheets.”
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