Peter Schiff: Once the psychology turns, there is no way to stop the rush for the exits
Peter Schiff writes With Oversized Deficits Almost Certain to Persist, an Investment In Americaâ€™s Future is One Very Tough Sell.
Once the psychology turns, there is no way to stop the rush for the exits. Remember how quickly the secondary market for subprime mortgages collapsed? One day, investors were lining up to buy; the next day, the stuff couldnâ€™t be given away.
Make no mistake about it, we are issuing subprime paper and no amount of political spin can alter that reality. Bogus credit ratings aside, I think the world already knows this and itâ€™s just a matter of time before someone admits it.
My Comments: It is only a matter of time before a crisis of confidence hits the US Dollar and US Treasury bonds. While we have seen interest rates on 10 and 30 year bonds rise in recent weeks, and declines in the dollar over the last couple of weeks, we are not there just yet. The Chinese are still buying our bonds, and the fact that most major international transactions are settled in US dollars means that when the next bout of panic selling occurs, deleveraging may result in similar effects as what we saw in 2008, with a complete collapse of just about every asset class in terms of dollars, while the dollar strengthened versus other currencies around the globe. This same scenario may unfold in late 2009 and early 2010 as the economic realities hit investors and selling begins again.
The difference this time will be that once deleveraging is completed, foreigners will run for the hills, as they will no longer believe the B.S. and the hype being thrown at them by the US mainstream media, the Fed, Treasury and Obama administration. This will be a crisis of confidence leading to a severe collapse of the US Dollar and massive interest rate increases on long-term bonds, wiping out bond holders in the process.
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Date: June 8th, 2009
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