Peter Schiff, who was known as “Dr. Doom” for his accurate predictions of the 2008 housing market collapse, warns that the United States’ current fiscal policy could push the country over a “financial cliff.”
“I do think we’re probably going to go to hell, I’m not sure that we’ll be fortunate enough to have the handbasket,” Schiff said in an interview with Yahoo!. “The real fiscal crisis comes when our creditors want their money back and we don’t have it.”
Schiff, the President and CEO of financial institution Euro Pacific Capital, believes that U.S. fiscal policy is fundamentally weak due to the federal government’s inability to effectively limit spending, leading to massive debt and a lack of growth.
“For a while, I think that people were very worried about Europe and the euro, but it seems like those concerns, at least temporarily, are abating. The euro is now rising, and of course that will put the spotlight back on the U.S.”
Schiff’s ideas are nothing new, but he maintains that current economic indicators show an oncoming financial storm that could have dire consequences for all major world markets.
According to Schiff, both major parties intend to pressure the Federal Reserve to print money in order to either maintain or increase spending. Neither is proposing significant budget cuts, and this will inevitably cause “massive inflation” according to Schiff’s analyses.
Schiff sees a way out, but Congress needs to make hard moves that will cause individuals in certain industries to lose job security. Congress and the Executive Office may also need to authorize tax hikes, which are never popular with voters.
“The best thing the government can do is shrink itself, make itself the smallest possible burden it can to allow the economy to recover,” Schiff argues. “Just like if someone goes cold turkey from drugs, they go through withdrawal–it’s not a fun, you know, thing to do. But it works, ultimately, and that’s what we need.”
The International Monetary Fund’s most recent World Economic Outlook forecasts a stall in worldwide economic growth in 2013 followed by “the full materialization of the fiscal cliff.” Schiff, however, claims that the United States’ real problems will materialize after 2013.
“It’s going to be painful to correct [inflationary spending], but we have to do it, we can’t keep avoiding the pain and making the problem worse.”