Taxmageddon and "the fiscal cliff" has been discussed extensively on "Real News," as America braces for January 2013 with the simultaneous implementation of $2 trillion in automatic spending cuts over 10 years agreed to in last year's debt ceiling vote, and the expiration of the Bush era tax cuts. But there is one economist who suggests that the "real" cliff is something that no one is paying attention to.
Peter Schiff of Euro Pacific Capital writes that the economy will encounter the most difficulty in finding a way to deal with the debt burden that the U.S. will face when interest rates rise to normal levels:
The current national debt is about $16 trillion (this is just the funded portion...the unfunded liabilities of the Treasury are much, much larger). The only reason the United States is able to service this staggering level of debt is that the currently low interest rate on government debt (now below 2 per cent) keeps debt service payments to a relatively manageable $300 billion per year.
On the current trajectory the national debt will likely hit $20 trillion in a few years. If by that time interest rates were to return to some semblance of historic normalcy, say 5 per cent, interest payments on the debt would then run $1 trillion per year. This sum could represent almost 40 per cent of total federal revenues in 2012!
Andrew Schiff of Euro Pacific Capital joined "Real News" Wednesday to discuss the looming disaster and whether or not it can even be handled: