Schiff: U.S. Is a Subprime Borrower

Thursday, 06 May 2010 08:53 AM

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Euro Pacific Capital president Peter Schiff says it's better to have an inflexible currency — and that the ability to print money is making the U.S. a subprime borrower.

“The U.S. government is making the same mistakes that subprime borrowers made when (banks) were making teaser rates on their mortgages,” Schiff says.

“What happens if interest rates go up to 10 percent, which is half of what they were in 1980? All of a sudden, we’re paying $1.5 trillion a year (in interest),” Schiff told CNBC.

“The government isn’t borrowing for 30 years,” he points out. “The government is borrowing for 30 days. This is a teaser rate on an adjustable rate mortgage and we are headed for disaster.”

Moreover, Schiff notes that the $12.8 trillion unfunded debt figure doesn’t include off budget items like the debts of Fannie Mae and Freddie Mac, nor unfunded liabilities like Medicare and Social Security.

However, economist James Galbraith counters by saying that the deficit is no problem because we can print money — and the heightened level of concern about our national debt is the result of fear mongering.

“The government can, in fat, borrow for 20 years at a rate which is running at 4.5 percent. That’s a rate that tells you that the capital markets are not in fact worried,” he says.

“Today, the U.S, government does not have and is not going to have a problem financing its public expenditures and its deficits,” Galbraith adds. “It’s simply not an issue that should be on our list of things that we really care about right now.”

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