Peter Schiff: First The Currency Cliff, Then Higher Inflation And Interest Rates

In a new video message, Peter Schiff reacts on the longer term outlook of the outcome of the “fiscal cliff debate”. Obviously we don’t want to spend time and effort in analyzing what has been decided, but rather what is to come. We have found some interesting insights in Peter Schiff his point of view although most of them are not new.

Peter Schiff is convinced that America is going to raise the debt ceiling again. That is the most irresponsible and reckless type of action, but the only one he expects. Because of this, the dollar is going to come under pressure. Currently the focus is on the European crisis. However, the coming US crisis is much worse. At least, the Europeans deal one way or another with their problems. The American politicians are less disciplined; they keep on spending what they do not have and keep on increasing the already huge deficits.

There is no pressure on America yet, but there will eventually be, says Schiff. As soon as the world really worries about the American debt, they will sell their dollars. The dollar is the reserve currency for now, but it does not mean it will be the reserve currency forever. The US cannot run deficits forever. With that type of deficits, the US dollar cannot stay the anchor of the world’s monetary system.

There will be consequences to the American economy of the increasing deficits. Peter Schiff believes that things will play out in the following order: the crisis will first hit in the exchange markets, then in consumer prices (price inflation) and finally in the long term interest rates.

Some people argue that we are leaving these debts to our children but Schiff disagrees. We will pay these debts, and we will do starting almost right now. The recent bill is a gigantic increase in the inflation tax. We will pay for it by debasing the currency. Schiff believes it is not going to be just a small decline. This will be a precipitous decline as the  dollar goes over a currency cliff and takes the bond market with it. It is not going to happen years down the road; it is going to happen soon. It will be much bigger than the 2008 crisis.

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