Tim Geithner Spills the Beans, U.S. Debt Crisis Looms

As the European sovereign debt crisis quickly spreads to Spain (again), with the Spanish 10-year bond yield once again soaring past 6 percent (on its way to the magic red-alert yield of 7.5 percent), the half-life between sovereign debt bailouts appears to be diminishing.  Predictions of a four-year time window to prepare for the mother of all currency crises could turn out to be overly optimistic, with the latest rumblings that suggest the math won’t work a lot sooner than originally estimated by some economist and analysts focused on the problem.

So says U.S. Treasury Secretary Timothy Geithner, if lightening has indeed struck again.  Sign-up for my 100% FREE Alerts

From the weekend program, Meet the Press:

DAVID GREGORY: If we don’t deal with these debt problems we are going to be Greece in two years”

GEITHNER: “No risk of that.”

A year earlier, when Geithner was asked about scuttlebutt brewing of an impending downgrade of U.S. debt, he assured the world that there is “no risk of that” either.  Weeks later, rating agency Standard & Poor’s rocked the financial markets with an announcement of a debt downgrade of the world’s remaining superpower.

Geithner, once afforded the traditional benefit of a reasonable measure of public trust, lost all credibility on the day of the S&P announcement, as a case made that the highest-ranking Treasury ‘official’ wasn’t privy to an impending historic milestone of such gravity was never attempted by anyone in the Obama administration.

Could Geithner have slipped up again?  Does he know the dollar’s days number less than two years’ worth?

Though a stretch, as it may appear, Geithner’s otherwise carefully measured responses during his tenure as Treasury Secretary have at times been marked by fits of overplayed knee-jerk protests—’me thinks’.  As in the case of S&P, it’s become clear that Geithner may exhibit a ‘tell’ under certain moments of duress.

If U.S. debt and current account deficits weren’t so bizarrely high, coupled with a likelihood of GDP contraction in the U.S. next year coming more into focus; and a growing repulsion by overseas creditors to accumulate more debt, investors could reasonably accept Geithner’s word on the subject of solvency.

But one economist, in particular, is quite sure that 2014 will be the end of the line of 40-years-plus of deficit spending without tears.

“We’re at a scary point in time” in U.S. fiscal history, economist John Williams of ShadowStats.com told Financial Sense Newshour in March.  “Our [U.S.] circumstances are a lot worse than the European situation, in aggregate.  The European situation will work its way out one way or another, and the markets will focus back on the U.S.  I cannot see anyone wanting to buy U.S. Treasuries.”

Williams went on to say that as soon as there is any relief in the crisis in Europe, the bond vigilantes will begin to take notice of the overwhelming fiscal problems confronting the U.S. and its Greece-like characteristics.  For now, he said, the dollar is less ugly than the euro, but that won’t last very much longer.

“The U.S. is the elephant in the bathtub here . . . the European crisis is more like the little yellow rubber duck floating in the tub,” Williams added.  “There will come a time when the markets will begin focusing back on the dollar.”

And that time could be a lot sooner than many in Washington care to admit, according to Williams.  “I expect it to all come to a head in 2014.”  There will be hyperinflation, he said.  It’s only a matter of time and not much can be done about it other than drastic cuts to entitlements and accept a deflationary collapse.  And Williams isn’t giving that scenario much chance.  Sign-up for my 100% FREE Alerts

Peter Schiff slams Obama, Geithner and Buffett

As global stock markets crash in the backdrop of a soaring gold price, Euro Pacific Capital CEO Peter Schiff unleashed a series of salvos on the Obama Administration in the handling of the budget crisis, and slammed billionaire investor Warren Buffett for encouraging continued profligate policies of the White House and, by implication, the Congress.

Standard & Poor’s downgrade of U.S. debt kicked off a firestorm of financial and political calamity that has now required an all out damage control operation from the White House and the government’s go-to “private sector” operative Warren Buffet.

“In Wall Street parlance, any downgrade means get the hell out … If they [rating agencies] go from a Strong Buy to a Buy, it means, you know, look out below,” Schiff told Max Keiser of Russia Today’s Keiser Report.

“What S&P is saying, as far as I’m concerned, is get out of U.S. debt, any dollar-denominated debt, because what they’re really downgrading is not Treasury bonds, but the dollar.”

And, immediately after the S&P downgrade, investors fled the dollar—in mass.  As U.S. Treasuries soared (dollar positive), gold sailed past Treasuries (dollar negative), turning what seemed like a dollar-positive event into a catastrophein the dollar in purchasing power against the ultimate currency, gold.

Even the Wall Street Journal headlined an article on Monday, following the rating agency’s announcement of a U.S. downgrade on Friday, heralded U.S. Treasuries as the “gold standard” of debt, in a well-place position atop Yahoo’s financial news feed.  The orchestrated response, crafted over the weekend, couldn’t be more obvious to those following closely the 3-year-long slow-motion global financial crisis.

Of course, the U.S. has other options apart from defaulting in a manner Argentina, Mexico or German had defaulted in the past.  Instead, it appears the U.S. has predictably chosen to inflate its way out of overburdening debt, which Schiff said, is the point of S&P’s downgrade.

“Because S&P knows—as Alan Greenspan said, and Warren Buffett said—they don’t have to default, they can print,” Schiff explained. “But that’s worse, especially if you’re a bondholder; you get paid back in Monopoly money.”

In complete agreement with European leaders, Schiff went on to ridicule a rating agency system that rates the world’s largest creditor, China, below the world’s largest debtor, the U.S.

“Why is China, the world’s biggest creditor nation—we owe China trillions—how could they be rated AA-, and we’re rated AA+?” Schiff asked, rhetorically.  ”What kind of twilight world is the world’s biggest debtor a bigger risk [meant to say, better risk] than world’s biggest creditor?”

Then, in a typical Schiff rapid-fire rant, U.S. Treasury Secretary Timothy Geithner entered Schiff’s sites.

Geithner, who said S&P made a math error in its calculations of projected U.S. deficits, calling the error a “$2 trillion mistake,” only serves as a red herring, or a canard, as Keiser put it in his question to Schiff about Geithner’s comments.

Schiff responded to Geithner’s comment by pointing out that the Congressional Budget Office (CBO), a political arm of the White House, had made grandiose growth and unrealistically low inflation assumptions in its forecast, which Schiff implied, were nothing more than typical self-serving propaganda budget forecasts out of Washington.

“The reality is that we are going back to recession,” Schiff scoffed.  “So you take all those rosy scenarios and throw them in the trash can where they belong.  The budget deficit is going to be much worse than both the Administration and S&P believe.  So they’re all wrong on the math.”

And on the subject of Warren Buffett’s comment following the S&P downgrade announcement, in which, he said U.S. Treasuries should hold a “AAAA rating,” Schiff again commented by implying that Buffett is a has-been, a kept man of the rigged system, and has become more of a humorous sideshow during the crisis than a man whose comments should actually be taken to heart by investors.

Buffett’s opinion is “moronic,” said Schiff.  In his advanced age, “senility is catching up with Warren.”