Peter Schiff Is "Fundamentally Misguided," James Galbraith Says

Galbraith was responding to the "fear mongering" of those who claim the U.S. is on the road to ruin because of its rising debts, specifically Euro Pacific Capital's Peter Schiff.

Last week, Schiff and Galbraith engaged in a heated debate on CNBC regarding this issue; we asked the professor to respond when he came on Tech Ticker Friday.

As stated here, Schiff believes "sovereign credit risk in the U.S. is just as great -- if not greater than [in] Greece."

But that is an "absurd proposition," according to Galbraith.

"Greece is a very small country in a very large currency zone it doesn't control," he says. "The U.S. is a very large, autonomous economy that can set its own course [and] has enormous amount of capacity to deal with its problems."

In the CNBC debate, Schiff claimed the U.S. is acting like a subprime borrower using a teaser rate and will be unable to fund its deficits once short-term rates spike. Galbraith dismisses that scenario in the accompanying video, suggesting "for better or worse," the Fed controls short-term rates. And foreigners, most notably China, have little choice but to own Treasuries and would be committing financial suicide if they dumped U.S. holdings en masse, he says. 

Undoubtedly, Schiff's fans (and Schiff himself) will recall the author and Senate candidate was similarly scoffed at in 2005 and 2006 when he warned of a housing bubble, and in 2007 when he said subprime was definitely not contained. (See: Peter Schiff was right.)

Hopefully, Schiff will be proven wrong this time.

Editor's note: Time constraints prohibited us from asking Schiff about his debate with Galbraith last week. But the invitation for him to retort is open and hopefully we can have both gentlemen on soon to debate these and related issues.