Is the USA next in line for debt default?
In an interview hosted by Matt Welch, radio host and economic / investment expert Peter Schiff warns of the indicators found in the US economy and how they are going to take us down the same road as Greece who has recently teetered on the brink of being ejected from the European Union and facing financial collapse, "What's happening in Greece and what's happening in Puerto Rico is going to happen in the United States,"
Peter Schiff, CEO of Euro Pacific Capital notes, "Once the Greek creditors began to question the solvency of Greece they demanded higher interest rates. The minute our creditors figure out we are in the same position as Greece or Puerto Rico, they're going to demand higher interest rate from us and we can't pay either."
When people discuss default, this is what it means - that we are not able to service the interest rate on the debt that we have outstanding and that we are not able to pay creditors who have 'loaned' us the money that we borrow. It is interesting to note that Quantitative Easing was the process of printing money for the purpose of buying our own Treasury Notes. In other words, it is like spending money on your Visa, then going home and printing money so that you can borrow more. The problem with the analogy is that in our economy, we do not pay the debt down, we only accumulate more.
Further, we have enjoyed world currency status meaning that our cash is good everywhere and is used as the primary currency in the world. This is true because it is the primary currency used to purchase oil. We have abused that power though and it is not a matter of if, but a matter of when the world will no longer tolerate our abuses. With a debt ratio of more than 100% compared to the GDP, if any other nation were were in this situation, there would not be any question that we would be forced into default.
Add to that artificially low interest rates and you have a recipe for disaster. Many do not correlate the interest rate of 0 and our ability to service our national debt. Right now we can make payments but what happens when interest rates go to even 3%, which is still extremely low? Then we have to pay much more to service the nearly $20 trillion we have in liquid debt (not even overall debt). That number becomes astronomical.
The Feds have been able to keep these rates down by printing more money and they are under the misguided belief that they can control the interest rates we pay, but there is a stark reality awaiting the policy makers. There is a point where pressure for interest rates to rise exceeds the ability for Feds to contain it and, just like the housing collapse, the more you keep the lid on pressure, the more that pressure builds and the bigger the explosion.
This is a great video interview lasting about 3 1/2 minutes.