'We're going to have to have a severe recession if we're ever going to build a viable economy': Here’s why one market expert says the US is doomed to default on its debt no matter what

Trader scared

  • Peter Schiff, the outspoken CEO and president of Euro Pacific
    Capital, thinks the gargantuan amount of debt the US is carrying is
    primed to default.
  • He calls repayment “impossible” and sees this mess ending in
    either an “honest” or “dishonest” default.
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For one reason or another, the towering amount of debt the US
has racked up over the years seems to be of little concern to
market participants and politicians alike.

Currently, that figure tops
$22 trillion
— and is growing fast. What’s more, as modern
monetary theory
continues to gradually inch its way towards the
limelight, some are even questioning if it matters at all. 

Peter
Schiff
, the outspoken CEO and president of Euro Pacific
Capital, is passionately on the other side of that debate — and
he thinks that the US’ frivolous spending and money-printing is
going to culminate in a cataclysmic scenario. 

“The economy is getting sicker,” he said on Off
the Chain
, a digital assets podcast. “And that’s what the
central banks are doing when they cut rates and they print money
— they’re actually making the underlying economy sicker, even
though it doesn’t look sicker because they’re just measuring the
spending that goes on and they’re ignoring the debt that’s behind
it.”

But that debt is important. After all, it eventually has to be
repaid.

In Schiff’s opinion, the Federal
Reserve’s
affinity for printing money is going to result in
runaway inflation — and as a result, he expects a massive exodus
from the greenback.

“If the inflation rate is 4% or 5%, compounding — and you’re
getting 0% interest on your dollars — that’s a one way ticket to
a disaster,” he said. “I think inflation is going to break out all
around the world.”

Put briefly, Schiff thinks the US dollar is on track to
collapse.

If he’s right, these inflationary pressures will have to be
suppressed through the raising of interest rates. There’s only one
problem: The market can’t handle higher rates. The Fed tried
normalizing interest-rate policy and it barely got off the
ground.

“That’s when it hits the fan — because now the debt bubble pops,”
he said. “We’ve built an entire economy based on the perpetuation
of this continuing — that we can run trade deficits forever and
budget deficits forever and keep having low interest rates and
consumer prices that aren’t going up.” 

This is a key pillar underpinning his argument. To Schiff, this
notion is unsustainable — and the longer the kick-the-can
mentality manifests, the worse the unwinding will be. 

“That’s why the Fed is back doing QE,” he said. “There’s just
not enough private demand for all the debt the government is
selling.”

How it ends

With all of that under consideration, Schiff sees two possible
ways that this mess will play out: An honest default or a dishonest
default. 

By his personal definition, an honest default is exactly what it
sounds like: Creditors being paid back far less than they’re
owed. 

In direct contrast to this method is something he calls a
dishonest default scenario. Schiff describes this method as just
printing money, but according to him, that will result in hyper
inflation. Not the outcome that anyone is looking for.

“The important thing to recognize is we’re defaulting no matter
what,” he said. “It is impossible to repay the debt.”

Clearly, his perspectives are nothing short of extreme, but he
views a default as necessary in order to rebuild an economy that is
up to its neck in obligations it can’t meet. 

Against that backdrop, Schiff sees only one way to getting the
US back on track.

“We’re going to have to have a severe recession if we’re ever
going to build a viable economy,” he concluded. “This bubble won’t
go on forever.”

SEE ALSO: ‘People
see bubbles where there are none’: Why Nobel laureate Eugene Fama
thinks bubbles are impossible to identify in real time — and why
behavioral finance is a myth


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Source: FS – All – Economy – News
'We're going to have to have a severe recession if we're ever going to build a viable economy': Here’s why one market expert says the US is doomed to default on its debt no matter what