"This Will Collapse The US Dollar Any Day Now" - America's Biggest Ponzi Scheme | Peter Schiff

Duration: 16:20 3448 transcript words EN summary

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Peter Schiff argues that rising interest rates, while beneficial for individual investors seeking returns on Treasury bills, pose an existential threat to the US economy due to its massive debt burden. He highlights that with a national debt of $32.7 trillion and annual interest costs already ranking as the third-largest budget item after Medicare and Social Security—surpassing spending on national defense—the fiscal situation is becoming unsustainable. Schiff notes that interest payments have surged from roughly $300 billion to over $700 billion annually, a trajectory projected to reach one trillion by year-end and two trillion within four years. He warns that in just three or four years, the government will pay more in debt service than it collects in tax revenue, creating an impossible scenario unless interest rates are slashed, which would require further inflationary measures that could ironically drive rates even higher. The core of Schiff's argument is that the US economy has been structurally damaged by two decades of artificially low interest rates, which punished savers and rewarded borrowers to create a massive debt bubble involving municipalities, corporations buying back stock, and federal obligations. He posits that attempting to lower rates from current levels without causing an economic collapse is impossible; it requires breaking eggs like making an omelet. Consequently, Schiff believes the Federal Reserve will be forced to choose between depression or financial crisis on one side and inflation on the other. Given this dilemma, he predicts the Fed will opt for inflation as a mechanism of default, effectively monetizing the debt by printing money, which would erode currency value and make government bonds unattractive to private sector buyers who are already scarce since the Fed has become the primary purchaser of Treasuries. Schiff characterizes this situation explicitly as America's biggest Ponzi scheme, drawing a parallel between the US government's reliance on continuous borrowing and Bernie Madoff's fraud. He points out that officials like Treasury Secretary Janet Yellen admit to needing higher debt ceilings merely to continue not paying bills rather than raising taxes or cutting spending. According to Schiff, when lenders stop buying bonds because rates become too high for private entities but low enough for the Fed to monetize them without causing immediate collapse, the scheme is exposed. He suggests that while a honest default would be preferable as it forces debt restructuring at terms like 25 cents on the dollar, political realities will likely lead to inflationary depreciation of the currency instead. This approach allows the government to avoid admitting failure but ultimately transfers losses from creditors to holders of cash and fixed-income assets. Regarding the timeline and impact on different demographics, Schiff suggests that while he initially predicted a crisis in 2008 or earlier, the extension of low rates has only exacerbated the problem, leaving the nation living on borrowed time with no clear escape route other than inflationary collapse. He advises younger generations to be prepared for this outcome because they are less vulnerable; unlike retirees whose savings will be decimated by rising prices and falling bond values, young people without significant accumulated wealth can potentially earn enough through wages that rise alongside costs. Schiff also touches on the potential social consequences of such a crisis, noting that if taxes must be raised drastically to service debt or fund entitlements like Social Security and Medicare, younger citizens might choose to emigrate rather than pay them. He criticizes current policies making it expensive to renounce US citizenship as an attempt to prevent this exodus but argues that the only sustainable solution is for young people to leave if necessary, effectively triggering a "debt jubilee" where inflation wipes out both government debt and creditor wealth simultaneously.

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Rising interest rates seems from my perspective seems good because I can, you know, take my money out of the stock market or whatever and put it into T-bills and if T-bills are kicking off 15% like I'm laughing. Like that'd be amazing. Um except for when you look across the entire economy, people have so much debt. The government has so much debt that when you try to service something with a raising interest rate, it gets gnarly really really fast. think think about this. So we have a 32.7 trillion dollar national debt, which is rising by trillions of dollars a year. As of today, interest on the national debt is now the third biggest line item in the budget. So number one is Medicare, then social security, then interest on the debt, then national defense. We're actually spending more to pay interest on the money we borrowed than we're spending on defense. And of course, I think we're spending too much on defense. I think we should spend less, but we're spending more on interest. But here is the real problem. That number keeps growing. A couple of years ago, interest on the national debt was 300 billion a year. Now it's over 700 billion. By the end of the year, it'll be a trillion. By the end of next year, it'll be 2 trillion. What? in three or four in three or four years, the US government will be paying more in interest on the national debt than it collects in taxes. So I mean, this is impossible. Now, the only way around that is if Well, because the only way around that is if the Fed slashes interest rates. But what if they can't? What if they have to keep rates where they are? The government must default. There is no way that it can afford to make these payments because it would have The Fed would have to print so much money to monetize that debt that it would create so much inflation that it would push interest rates even higher. Because the more inflation there is, the less private sector demand there is for government debt. And but the more money the Fed prints to prevent interest rates from rising, the more inflation they create and the less attractive the government debt becomes. And now the Fed is the only buyer of Treasuries. But now it's not just Treasuries. What about municipal debt? What about all these municipalities and states that loaded up on debt? What's going to happen when it matures and they have to roll it over at much higher rates? What about all these corporations that borrowed a bunch of money to buy back their own stock? What's going to happen when that debt matures and now they have to try to refinance it and the rates have tripled or quadrupled uh for them. Uh everybody is going to collapse. Look, the problem is we need higher interest rates. Higher interest rates is what is part of the cure. But it's also what's going to what what's going to kill the current economy. You you you can't get rates from where they are now to where they need to be without a collapse. It's like you can't make an omelet without breaking eggs. Well, we're going to break a hell of a lot of eggs because of how much debt we have. Why do we have so much debt? Because we had 20 years of artificially low interest rates, of punishing people who saved and rewarding people who borrowed. And so the whole economy is screwed up. We we can't unscramble this egg. It's it you know, it it's it's it's going to be bad. But I think that because it's going to be so bad, the Fed is going to choose what it perceives to be the lesser of the two evils. It will choose inflation over collapse, depression, financial crisis, bankruptcy. Um that's why I'm convinced that my portfolios are the correct approach. You know, just be in real assets, be out of the dollar, be in precious metals, uh you know, be prepared to avoid the inflation tax because that's the tax that's going to clobber everybody. What time period is this all going to play out over? Well, I I mean I look, I mean I I've sounded the alarm in the past. I thought that, you know, the problem was was was was more uh eminent in 2008 and 9 and you know, they pulled a few rabbits out of the hat. I mean they we really bought a lot of time. You know, when I was you know, warning about the financial crisis back in 2002 and 3, you know, my first book uh Crash Proof how to profit from the coming economic collapse came out in February of '07. And so when I was writing that book, in fact that book was initially going to be something like uh the American Nightmare. It was going to be about real estate and why real estate was going to crash and all that, but I didn't think that that book had a broad enough appeal. So I made a more, you know, a broader book about the economy in general and real estate was, you know, a part of it. Uh there was a, you know, chapter on the real estate bubble and and how the government inflated it. Uh but back then I I thought that if we did what I thought we were going to do, which we ended up doing, I I I predicted quantitative easing before they even came up with the word, right? I knew what they were going to do. I just didn't know what they were going to call it until they they they did it. But I I I wouldn't have thought back then and I didn't think back then that we would be here in 2023 and they would have been able to run up the debt to 32 trillion and they would have been able to keep interest rates as low as they did for as long as they did. So that already surprised me. But because they succeeded in doing that, they just made the problems that I was worried about back then so much worse. And so now I think, you know, we're pretty much run out of time. I mean we're literally living on on borrowed time. So I mean I any day. I mean I I just think any day you go to sleep, you could wake up and it could be a whole new world. And and and and that's why, you know, you got to be prepared. I mean I you know, I I I I know that I'm not going to wake up to to that disaster financially. I mean it it's going to it could be bad, you know, just as an American. Um but as an investor, I I think I'm prepared and I think our fate will likely be sealed in the foreign markets. It's going to be our creditors. You know, during the debt ceiling debate, right? That we keep saying we got to raise the debt ceiling, right? We have to raise the debt ceiling so we can keep borrowing. Right? And if we can't keep borrowing, we're going to default, which is, you know, which is an admission, right? That uh we're running a Ponzi scheme. You know, I used to joke, you know, in fact I there's a you can see my stand-up routine on YouTube if you Google, you know, if you YouTube Peter Schiff stand-up. But I used to I used to tell this joke. I used to get a lot of laughs, but, you know, it back in the Bernie Madoff days, um when when Bernie Madoff, you know, when they were first talking to him, the New York Times, you know, was did an article. And Bernie Madoff said, "Look, you know, the US government's running the biggest Ponzi scheme ever. I mean, I'm I'm a compared to the government, right?" And so people would say, "Well, who cares what Bernie Madoff says, right? He doesn't He doesn't have any credibility. He's a criminal." And what I used to say back then was, "Well, he's got credibility in one area, and that's Ponzi schemes, right? He knows one when he sees one. And if Bernie Madoff says the US government is running a Ponzi scheme, he ought to know." And then I used to joke and I said, "You know, instead of putting him in jail, we should make him Secretary of the Treasury." Because he would do a much better job of running the scheme because I pointed out that you had Secretaries of the Treasury like current Janet Yellen. She comes out and says, "Hey, if we don't raise the debt ceiling, we're going to default." That's an admission it's a Ponzi scheme. Janet Yellen didn't say if we don't raise the debt ceiling, we're going to raise taxes so we can pay our bills. We're going to cut Social Security so we can pay our bills. No, if we don't raise the debt ceiling, we're going to stop paying our bills, right? That's why I would get a laugh. They say we have to raise the debt ceiling so we pay our bills or so America always pays its bills. No, we need to raise the debt ceiling to continue not paying our bills. The reason we have a stack of $32 trillion of unpaid bills is because we don't pay them. We we we deeper into debt. And so I used to joke and I said, you know, it's Ponzi 101. When you're running a Ponzi scheme, you keep it quiet. You don't tell the people that you're running a Ponzi scheme. So, at least we could have bluffed and pretended that no matter what, we're going to pay. No, we told everybody that the only way America is going to pay its bills is if we can find some other sucker who will lend us the money. And that but at the minute we run out of suckers and we can't borrow, well, you're SOL. That's basically what what what they admitted. Uh so, yeah, I mean, it's a gigantic Ponzi scheme and I think the Fed is going to you know, try to prevent the government from defaulting by buying those bonds and printing the money. And that and that means the the default takes the form of depreciation of the currency. The the debt is unpayable, right? The one thing that you know for sure is the government's not going to pay its bills. It's not going to pay the debt. The only question is how does it default? Does it do it honestly by just not paying or dishonestly through inflation? Personally, not paying, default would be much better. I mean, I would like to see a complete restructuring of the government where the government, you know, cuts a lot of spending including uh the debt. I think we should basically try to negotiate or, you know, maybe 50 cents on the dollar, 25 cents on the dollar, uh you know, it's better to repay our creditors less money than pay them in full with inflated money where they end up with even bigger losses. But unfortunately, that's the path we're going to go down because from a political perspective, nobody wants to to to to do the truth now. They just want to kick the can down the road. I mean, you don't want to diffuse the bomb before it blows off. You want to let it, you know, before it blows up, you want to let the bomb explode and then point the fingers and blame it on somebody else. And say that there's nothing we could have done. This is No, nobody could have predicted this. Peter, what would your advice be to the youth of the nation? They're going to inherit this mess. Um, they are though part of the human nature that makes this problem. Do we need an era of austerity? Um, is it just what you're saying, restructure slash I've I heard you give a talk where you were like there's whatever 15 governmental units, keep five, kill 10. Those aren't the exact numbers, but that was the spirit. Um, yeah, what what is your letter to to the youth of the nation? Well, I think the youth are actually in in better shape than let's say my generation. I'm at the tail end of the baby boom. I'm I'm 60. But if I'm right, then inflation is how this ends. It's a lot of older people who are going to get wiped out. If you're young, chances are you don't have a lot of savings. In fact, you probably have no savings whatsoever. Uh, and and so you know, inflation's not going to affect you in that way. And you're still out there working. Uh, you can you can demand a raise, right? Or you can you know, you can earn more money uh, to cover the fact that costs have gone up. But if you're older, if you're retired, if you're living off investments, uh, you get decimated. You know, a lot of people say, oh, you know, we're leaving all this debt to our grandkids. The grandkids don't have to pay it. I mean, they can leave. I mean, in theory we'd have to raise taxes massively on the younger generation to pay off the debts of their parents and grandparents. But what if they just leave? You know, when I ran for Senate, I did that, you know, once in in in 2010. And obviously I didn't get elected, you know, saying the type of stuff I say, right? It's difficult. But I ran one time in in in 2010. But people used to ask me, you know, where do you stand on a wall, on building a wall, you know, between Mexico and the United States. And I was always against the wall. And the main reason I was against it is I said, you know, if we build that wall, it works both ways. Right? It's not just that it keeps Mexicans out, but it could be used to keep the Americans in. That's what scares me because what if we have to raise taxes so much on the young generation to make the social security payments and the Medicare payments and all that that they want to leave. That they just say screw this. I'm not paying 50, 60, 70% income tax. I'm going I'm going to Mexico. I'm going someplace else, you know. I mean that's what happens with countries when when when when people want to leave because the government's are too big they make it illegal to leave. You know, in order to renounce your citizenship there was a form that you had to fill out. And that form was free. Then they raised the price of the form to like 500 bucks. Now it's $5,000. You have to pay $5,000 if you want to give up your citizenship. Now, why is the government making it more expensive to give up your citizenship? Because more people want to do it. Well, what if they what if they increase the price to um a million dollars? Well, I mean you know, they could they I mean they I mean they're forcing people to stay. That you know, obviously there's a reason for that and cuz they can keep on taxing you, right? Cuz if you if you're a US citizen and you live someplace else and work and earn money, you still owe taxes to America. You know, that's not the case with just about everybody else in the world. Right? We talked about the UK. I mean if you if you're if you're British, your British passport and and you go uh to let's say Dubai and you live and work in Dubai. They have no income tax in Dubai. You don't pay any taxes back to Britain. You live in Dubai. You're still a British citizen, right? You can go you know, but you don't pay any taxes to the UK government if you're not in the UK. But if you're an American citizen and you go to Dubai and you work right next to that British guy and you have like the work for the same company you have this you know, you're doing the same job, you're paying taxes to America even though you're not in America, right? So we're we're America is unique in that we tax your income no matter where where are in the world earning it. Um but yeah, I mean it's going to be difficult to keep the young people I mean they you know obviously it's harder for the IRS to get you if you're in another country and you never come back, but I think that um the younger people are going to ultimately get off the hook from the debt because we're going to inflate it away. But if we don't do that, if we try to tax them, they're just going to leave. You know, and even if we build walls, you know, they'll get under them. They'll get over them. I mean it's you know, it's a big country. We got two oceans. You know, if they if they try to force the young people to stay, it ain't going to be easy. But you know, that's one of the reasons that I oppose, you know, the government getting more power over us to to to snoop on us and know everything we're doing because if people are ever at the point where they want to flee the country, I want them to be able to do it. I don't want the government to be able to stop them. I don't want the US government to be able to force people to stay here if they want to leave. I want people to be free to go. You know, and in fact, if the government knows that people will leave, then that's going to keep them more honest, right? If they know that they people can escape the taxes by leaving, that then that's an incentive not to raise them up too high. If they think that they've got the border sealed and everybody is captive, well then they can they can tax even more. Peter, that is a sobering answer to the youth of America. You can still escape, boys and girls. Don't worry. But but it's not just that. It's that it's that you know, they they don't have a lifetime of savings that's going to get destroyed by inflation. And I don't think they're going to get stuck with the debt. Again, the debt's going to be inflated away, and so it's come almost like a debt jubilee. We're kind of going to start over. But when the debt gets inflated away, one person's debt is somebody else's asset, right? If somebody owes money, they owe it to somebody else. So somebody is a debtor and somebody is a creditor. So when inflation wipes out debt, it wipes out the creditor as well. Now, who is the biggest debtor on the planet Earth? The US government. In fact, we might be the biggest debtor in the universe. I mean, I I I think it if we can find life on another planet, I doubt there's a government on that planet that has as much debt as the United States. I think we have a I mean, maybe I'm wrong, but I doubt it. But, so but the US government is the biggest debtor. And so, the US government actually has the most to gain from inflation. That's why it creates it, right? That's that that the the government wants inflation. They just don't want us to realize that they're creating it, and they don't want it to get out of hand. But, it will get out of hand, right? It's like, you know, you you know, it's like you let loose the monster, right? It's like the government is, you know, Dr. Frankenstein, and they think they can control the monster, uh but the monster is is going to is going to end up beyond their control. If you like that clip, check out the full powerful episode here, and I'll see you there.