Tags: Schiff | US | Treasurys | Junk | Dollar

Schiff: 'Junk' US Treasurys, Dollar Headed for Collapse

Wednesday, 02 May 2012 09:26 AM

Both the U.S. Treasury bond and the dollar are headed for collapse thanks to the Federal Reserve's policy of keeping interest rates near zero for years, says Peter Schiff, CEO of Euro Pacific Capital.

"As far as I am concerned, U.S. Treasurys are junk bonds," Schiff tells CNBC.

"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."

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

To further ensure long-term interest rates stay low and the economy awash in liquidity, the Fed has spent the last few years snapping up bonds held by banks, an extraordinary policy tool known as quantitative easing (QE) that weakens the dollar as a trade off for recovery.

While high-ranking Fed officials say the economy needs no more easing, Fed Chairman Ben Bernanke has said he can't rule it out as the labor market remains weak.

"Unfortunately, we are going to get more QE than Rocky movies, because the only thing keeping this phony economy going is this QE,” Schiff says.

"And the minute you take it away, it’s going to collapse."

Several high-ranking Fed officials oppose further quantitative easing, pointing out past rounds of easing, which injected $2.3 trillion into the economy, have run their course while a new round would threaten to pump up inflation rates.

"With the very accommodative stance of monetary policy that has now been in place for more than three years, we must guard against the medium- and longer-term risks of inflation," says Philadelphia Fed President Charles Plosser, according to Bloomberg.

Instead of stimulating the economy, the Fed may have to hike interest rates "well before" the end of 2014 "in the absence of some shock that derails the recovery."

The Fed has officially said conditions meriting today's low interest rates will likely stick around through 2014.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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Wednesday, 02 May 2012 09:26 AM
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