Peter Schiff: Economic Conditions Worse Now than on Black Monday

Money News
October 25, 2012

The economic backdrop that sparked the stock market crash of 1987 is still in place and has grown worse, says Peter Schiff, CEO of Euro Pacific Capital.

In 1987, “the market was spooked by concerns over international trade and government debt, which then became known as the twin deficits" — the budget deficit and the trade deficit, Schiff writes an economic commentary.

The deficits together totaled 6.4 percent of gross domestic product (GDP) then.

Flash forward to now: the deficits add up to 13 percent of GDP. “But today's investors are largely untroubled,” Schiff says.

The Federal Reserve’s massive easing program has made investors immune to worries over the deficits, he maintains. But ultimately, the joy ride will end.

“When America's creditors wake up, particularly those foreign governments now shouldering the lion's share of the burden [financing U.S. debt], concerns over our twin deficits will return with a vengeance,” Schiff says.

With the Fed so committed to quantitative easing, stocks might escape a crash, but not the dollar and Treasurys, he notes.

“Black Monday is more likely to occur in the currency and/or bond markets, with safe-haven flows moving into gold, not Treasurys.”

Marc Faber, publisher of the Gloom Boom & Doom Report, also expects exploding government debt to cause a crisis, and not just in the United States.

“I think within five to 10 years you have a colossal mess everywhere in the Western world,” he tells CNBC.