.
US Treasurys Are ‘Junk,’ Dollar Headed for Collapse: Schiff
Published: Tuesday,
1 May 2012 | 11:07 PM ET
By: Jean Chua
Writer, CNBC.com
Writer, CNBC.com
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.”
0 comments:
Publicar un comentario