Of course he has a new book to sell, The Real Crash, but it’s not as if the CEO and chief global strategist of Euro Pacific Capital suddenly hit upon the theme, as he was one of the few people (no, really) to accurately call the 2008 market bust.
“We are broke; let’s just acknowledge it because not doing so only makes it worse,” Schiff (left) said in an interview with AdvisorOne.
“If you look at the increase in contingency liabilities in just the past year with government pensions, social security and mortgage obligations, the true amount of the increase in the debt is not $1.4 trillion, rather $5 trillion,” he calculates. “And remember, that’s only from government pensions, social security and mortgage obligations, not any of the other unfunded obligations.”
According to Schiff, that equals $43,000 per household, or roughly 90% of the average annual household income of $49,000.
“In order to pay that off, you’d have to increase taxes by 90%,” he said. “However, most households already pay at least 10% in taxes. There’s no more money to give; that would put them at a 100% tax bracket. The government wouldn’t collect a penny in that case because no one would work if everything they earned was taxed. But if you need a 100% tax rate to pay off your debts, you’re broke at that point.”
Schiff adds that the country was “feigning solvency” by keeping interest rates at historic lows, which is one of the topics discussed in the new book.
“This means we can pay the 'teaser rate' interest, but once interest rates rise, we’re screwed,” he colorfully stated. “Now, the Fed can try to keep them low indefinitely, but that will destroy the dollar.”
Part of the reason we’re “getting away with it” is because of the problems in Europe and the distraction they lend. Once resolved, the attention will once again return here, and investors won’t like what they see.
“The euro crisis is a godsend, in a way, but it won’t last, and in many ways we’re worse off than Europe,” he says.
“We’re like Facebook,” Schiff concludes, referring to the social media site’s recent IPO and its attendant problems. “Everyone thinks we’re great, but the more they look, the more they don’t like.”