- American economist and crypto skeptic Peter Schiff said in a new episode of The Peter Schiff Show that rising U.S. Treasury yields amid weak economic data could signal an approaching debt crisis.
- Schiff also said artificial intelligence’s economic benefits may emerge only after a period of high debt, inflation and more expensive financing.
- At the time of writing, the 10-year Treasury yield had reached 5.33%, its highest level since 2002, according to Schiff’s comments.
Schiff warned that high government debt combined with elevated interest rates was “absolutely unsustainable.” He said a weak labor-market report that failed to halt the bond sell-off could turn a gradual deterioration into a much sharper crash.
Treasury yields rise despite weak data
According to Schiff, the U.S. Treasury market showed an atypical reaction this week as yields rose even while economic indicators weakened. The 30-year Treasury yield reached 5.62%, while the 10-year yield closed at 5.26%.
At the same time, the consumer confidence index fell to 81.9, its lowest level in 12 years, and the number of job openings came in below expectations. The 10-year yield later reached 5.33%, which Schiff said was the highest since 2002.
The increase followed attempts by the U.S. Treasury Department to support the market through buybacks of long-term bonds. In September, the department, led by Scott Bessent, raised the maximum size of the operation to $6 billion. On Sept. 10, it repurchased about $5.19 billion of securities.
However, the 10-year Treasury yield rose to nearly 4.98% after the operation was announced. Investors at the time remained concerned about the government’s ability to sustain its long-term debt amid a large deficit. U.S. billionaire Stanley Druckenmiller had also criticized the Treasury’s long-term bond-buyback program.
“A real crisis is coming where we have high debt and high interest rates. That is completely unsustainable, and it’s the worst of all possible worlds,” Schiff said.
Schiff described gold as the “last safe haven” asset. He noted that the metal remained above $4,000 after falling by about $170 per ounce, while silver hovered around $60. In his view, excess debt, inflation risks and a prolonged bond-market downtrend are the main forces driving yields higher.
Schiff questions AI’s near-term economic payoff
Schiff acknowledged that artificial intelligence could have a significant effect on productivity, corporate profits and the broader economy. However, he said the massive investment in AI had not yet produced a commensurate return.
“Before we get to the AI promised land, we gotta cross this desert here of debt and inflation and complete collapse, which can unravel in the next few years,” Schiff said.
He said the economy must first absorb the cost of constructing the infrastructure required for AI before realizing the technology’s potential benefits.
Schiff also cited competition for capital between the U.S. government and major technology companies as a risk. Those companies are borrowing to finance data centers and computing infrastructure, and Schiff said the “race for compute” could help keep interest rates elevated.
Schiff previously predicted that bitcoin would fall below $20,000. In June, he said the cryptocurrency could quickly drop below $20,000 after breaking the $50,000 level.
By contrast, macro strategist and bond-market investor Mark Connors believes regular buybacks of long-term Treasury bonds could create more favorable conditions for bitcoin and help drive it toward $180,000.
Source: Incrypted
