Schiff on the Real Fiscal Cliff

Peter Schiff says that despite the dire warnings of what will happen if the Bush tax cuts expire and sequestration reduces government expenditures later this year, this is just the beginning. A much larger fiscal challenge looms. It’s further out, but not by much. Sooner or later interest rates are going to creep northward, and when they do – watch out.

(From The Washington Times)

“As we head toward the end of the year, the media’s fixation with the  congressionally imposed “fiscal cliff” will reach a fever pitch and no doubt  become a major factor in the presidential campaign. The danger is supposed to  arise from the simultaneous implementation of $2 trillion in automatic spending “cuts” (in reality, just reductions in the rate by which federal spending  increases) and the expiration of the George W. Bush-era tax rates. Most  economists fear that higher taxes and slower increases in federal spending will  combine to send us back into recession. Despite the hand-wringing, it is certain  that the lame-duck Congress will slap together a  late-December, last-minute, can-kicking compromise that will buy time at the  expense of long-term solvency. Any success in wriggling out of this particular  budgetary straitjacket will just make it more certain that we head straight for  another, larger, fiscal cliff that is hiding in plain sight.

As it is constructed currently, the U.S. budget will be completely and  thoroughly upended when interest rates approach levels that would be considered  normal by historical standards. A mere 5 percent rate portends a clear and  present danger to the budgetary priories of the United States.”

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