Peter Schiff, Senate candidate and CEO of Euro Pacific Capital joins James Galbraith, professor of economics at the University of Texas on CNBC April 26, 2010 (Video below).

Host: All this fear about debt – is it fear mongering?

James Galbraith: It is fear mongering and thank you for noticing that interest rates were much higher a decade ago than they are today. The United State government does not have and is not going to have a problem financing its public expenditures and its deficits. It’s simply not an issue that should be on our list of things we really care about.

Peter Schiff: Basically, the reason that this is happening, it’s not magic. The US government is making the same mistakes that sub-prime borrowers did when they were using teaser rates on their mortgages. We have a $12.5 trillion debt as you state. First of all that doesn’t include any of the off-budget items like the debt of Fannie and Freddie and it certainly doesn’t include the unfunded liabilities that dwarf that number….

What happens if interest rates go up to 10%, which is half of what they were in 1980…

…The government is not borrowing for 30 years, the government is borrowing for 30 days. There’s a lot of short-term paper. This is a teaser rate on an adjustable rate mortgage and we are headed for disaster.

…

James Galbraith: As I said before, if the markets were seriously worried about the prospect of inflation they would not have a 4.5% rate in bonds.

Peter Schiff: The markets are wrong. Just like the markets didn’t see the sub-prime problem until it was too late. Look, gold is at $1100 an ounce for a reason. It didn’t go from $250 ten years ago to $1100 without people worrying about inflation.

James Galbraith: So you’re telling me the price of gold is the oracle we should be following?

Peter Schiff: You should be following something. don’t be following the Federal Reserve…The market has consistently gotten things wrong.

This is a spirited and entertaining debate. I’d be worried if my child was studying under Mr. Galbraith, as he is either towing the standard government line or simply doesn’t see the dangers of the current $12.5 Trillion in debt plus the $100 trillion+ in unfunded liabilities (social security, Medicare, Medicaid, Obamacare) over the next 35 years.

Watch the video below: