Tuesday, October 20, 2009

David Tice: A Funding Crisis Could Be Imminent; Currency Controls Down the Road are a given

The highly respected David Tice of Federated Investors recently gave an interview on King World News, where he made some excellent points which we paraphrase here:
  • A funding crisis could be weeks away as the Fed ends repurchases of U.S. Treasuries (quantitative easing (QE)) in October. Given that the U.S. government needs trillions of dollars to fund its deficits over the next couple of years, without the Fed stepping in to buy Treasuries there could be a funding shortfall. The only way to postpone the crisis would be if Bernanke somehow surreptitiously continued QE in US Treasuries (e.g. via currency swaps with other governments who then used the Fed given dollars to buy US Treasuries).
  • If a funding crisis emerges Bernanke will be forced to raise rates, crushing the economy.
  • As the dollar breaks down as the world’s reserve currency, the U.S. government will be forced to impose currency controls to prevent capital from fleeing the country.
Listen to the entire interview here.

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