Peter Schiff : Well it’s going to be different in that it’s
going to be bigger. But what’s going trigger it is going to be reality.
People’s perceptions have to change. What triggered the collapse of
08? It was the realization that all these mortgage loans were bad, that
people had borrowed money to buy houses and had no ability to pay the
loans back. A lot of defaults were coming and a lot of these securities
weren’t worth what people thought they were worth and a lot of these
situations that people assumed were solvent were not. It was really the
discovery of that information which caused the collapse of 08; people
coming to appreciate the truth that they were living in a delusional state.
The same thing exists today with respect to sovereign debt with the
U.S. economy. People assume that we have a buyable economy, we do not.
America is an economy that is based on borrowing for consumption and
borrowing to sustain a massive government that is spending a tremendous
amount of money. The reason that all the pieces haven’t collapsed
already is because interest rates are very low and they are low because
the risk is not properly perceived. Just like those risks perceived in
the housing market, mortgages were mispriced or real estate was
mispriced, now government bonds are mispriced. You have a bubble in a
bond market where government is able to borrow extremely cheaply. We
can service the debt only because the rates are so low. But, when our
creditors come to the realization that we have borrowed beyond our
capacity to repay and the only choices are default or inflation then our
interest rates will skyrocket and bonds will plunge; or the Federal
Reserve will print massive amounts of money to prevent that from
happening and the dollar will plunge as prices skyrocket.
Ultimately the implosion in the economy is much more dramatic than in 08 because there are no bailouts coming. There’s nobody to bail out the bailer.
Once the government fails its game over and so this is the final
bubble and I called it in my book, the government bubble. That’s what
it is, it’s a bubble in government and it’s sustained by low interest
rates, just like the housing bubble was sustained by low interest rates.
But, you know all bubbles burst. It’s inevitable; the problem isn’t
that this bubble is going to burst, the problem is that we inflated it
in the first place and that we continue to blow air into it. That’s the
problem. The sooner it can burst the better, but that doesn’t mean it’s
going to be an enjoyable experience for big parts of the economy. I
mean there will be parts of the economy that will benefit immediately
from this, but there will be a lot of high profile losses. - in wallstreetoasis
Peter Schiff is a well-known commentator appearing regularly on CNBC, TechTicker and FoxNews. He is often referred to as "Doctor Doom" because of his bearish outlook on the economy and the U.S. Dollar in particular. Peter was one of the first from within the professional investment field to call the housing market a bubble. Peter has written a book called "Crash Proof" and a follow-on called "The Little Book of Bull Moves in Bear Markets". He is the President of EuroPacific Capital, which is a brokerage specializing in finding dividend-yielding, value-based foreign stocks.
PETER SCHIFF
