Friday, February 17, 2017

Peter Schiff warns Republicans Trump deficits will be huge

Despite voting for Donald Trump as a way to protest Hillary Clinton, one contrarian investor is warning of the new administration’s massive federal budget deficits. And this will not bode well for the nation’s fiscal future.

Writing in an op-ed on Wednesday entitled “Trump Deficits Will Be Huge,” Peter Schiff, president and CEO of Euro Pacific Capital, stated that the bloated budget deficits will have a far greater impact on investments than most on Wall Street can ever imagine.

Alluding to the fact that deficits exploded under Ronald Reagan and George W. Bush, Schiff explained that Republicans often only succeed in one of their general missions of cutting spending and taxes: tax cuts. Schiff says that when you cut taxes and continue to spend then this results in putting “a giant thumb on the Republicans’ budgetary scale.”

“Like prior Republicans, Trump has promised to cut taxes, on both corporations and individual taxpayers…even the wealthy. But unlike prior Republicans, he has not paid a word of lip service to spending cuts. He has promised to spend now, and spend big. Trump just doesn’t do the austerity thing. It’s for losers,” he averred.

“In addition to fronting the cost of building the 2,000 mile Wall (accounts receivable has a reliable address in Mexico), Trump plans big increases in military spending, both on active military and on our veterans. His reboot of Obamacare has yet to be presented, but as he has promised that no one will lose coverage, not even those with pre-existing conditions, we can be sure that Trumpcare won’t be cheap. But his big project will likely be his promised $1 trillion plus infrastructure spending plan. Most importantly, he diverges from most Republicans by promising no structural changes in Social Security and Medicare, the entitlement leviathans that are the sources of the vast majority of Federal red ink.”

He further stated that fiscal matters will take a backseat over the next two to four years, especially with a jubilant Republican Congress and Senate, which will likely pass anything Trump wants. This means fiscal prudence will be thrown out the window, and any opposition to the president’s spending initiatives will face a backlash from GOP primary voters, even those who have espoused the virtue of balanced budgets for the last eight years.

Schiff cited a Congressional Budget Office (CBO) report that projected deficit expansions every year and annual deficits of $1 trillion beginning in 2024. The CBO, however, was also positive about the country’s economic expansion, but with 92 consecutive months of expansion, even so slight, how could you have 18 years of growth?

“I believe it will be sooner rather than later that we will have another recession, which will greatly enlarge the deficits. History is clear on that point,” he added. “The Great Recession caused the deficit to triple. Even the mild recession of 2001 turned a $236 billion surplus into a $157 billion deficit in just two years. The next recession I expect to work similar magic. But, in addition to being blind to recessions, the CBO was also blind to Donald Trump.”

The bestselling author of “Crash Proof” and “How an Economy Grows” also published two interesting charts pertaining to gold, the U.S. dollar and expanding deficits.


Tuesday, February 14, 2017

The US debt bomb is going to explode, strategist Peter Schiff says

Low interest rates have helped defuse the United States' debt problems so far, but that won't last for long, strategist Peter Schiff told CNBC.

Schiff, president and CEO of Euro Pacific Capital, said on Thursday "the debt bomb is going to explode."

"I think the [Federal Reserve] is going to try to inflate its way out of this problem, but it's going to inflate its way into a bigger one," Schiff said on "Squawk Alley."

He said low interest rates have allowed the U.S. to service its debt, but repaying it is almost off the table. Schiff said as interest rates rise and inflation grows, creditors are going to demand a higher premium.

Schiff's comments come as the U.S. is just weeks away from passing the $20 trillion mark in total public debt outstanding.

On Thursday, Schiff also took a stab at infrastructure spending, which President Donald Trump has vowed to increase while in office. Schiff said that is not going to help the economy.

"You don't help the economy by spending money," he said. "To the extent that we need to repair our infrastructure, that's a cost that we have to bear."

He continued: "The fact that it creates jobs, that's not a good thing because we're diverting resources that we might otherwise have been able to use more productively to make necessary repairs to our infrastructure."

- Source, CNBC

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