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As markets cheer Qatar’s massive $200 billion jet deal with Boeing Co. (NYSE:BA), economist Peter Schiff has a warning that has little to do with planes, and a lot more to do with America’s structural vulnerabilities.
What Happened: On Wednesday, Schiff highlighted the potential financial fallout of Boeing’s mega deal with Qatar, which involves acquiring 160 jets for its state-owned carrier, Qatar Airways.
While acknowledging that this was “great for Boeing,” which hit a one-year high following the news, Schiff cautions that the transaction could come with a hidden cost for the U.S. economy.
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He says that to help finance this purchase, “Qatar will likely sell a lot of Treasuries and other U.S. assets,” further straining the U.S. bond market that is already under pressure.
Schiff says that this capital reallocation might contribute to “pushing up inflation and interest rates in the U.S.,” which comes at a time when the Federal Reserve is already grappling with persistent inflationary pressures amid a ballooning Federal trade deficit.
Why It Matters: The deal, which is one of the largest jet purchases ever made, comes at a time of growing concerns regarding America’s debt sustainability.
Early this week, economist Stephanie Pomboy raised similar concerns, asking, “Who’s going to buy $2 trillion worth of paper?” with major buyers such as China pulling back.
As U.S. 30-Year Treasury yields approached 5%, analyst Gordon Johnson warned of a potential “Liberation Day 2.0,” as it risks jeopardizing $8 trillion in U.S. debt that is set to be refinanced in 2025.
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On Tuesday, Schiff too called out the rising yields and the decline in the U.S. Dollar Index (DXY) despite the trade truce with China early in the week, which he says is because “the world is losing confidence in the dollar,” and the country’s ability to get its fiscal house in order.