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America: The Land of Debt

Economics / US Debt Aug 27, 2012 - 08:50 AM GMT

By: InvestmentContrarian

Economics

Traders and the media are focused on the debt distress in Spain, as the country is hindered by a national debt of around 712 billion euros, or about US$892 billion, which breaks down to US$19,391 per citizen. This is why Spain is seriously concerned about the 10-year bond yield at close to seven percent. Paying these high financing costs, trying to cut its national debt and manage its budget will not be easy. The reality is that the eurozone and Europe are in a serious financial crisis.


But while the Spanish situation and the economies of Italy, Greece, Portugal, and Ireland look bad, somehow everyone seems to be ignoring the $15.9 trillion of national debt in the U.S. That’s $50,863 per citizen, or more than double that of Spain. Worst of all, the national debt is mounting at an alarming rate, and it’s not going away anytime soon. The only plus here is the country’s low bond yields. If the U.S. had to pay out the high yields Spain does, the U.S. would be broke and facing a credit crisis.

This national debt will take decades to pay off or even get it to more manageable levels.

Something drastic needs to be done regarding the national debt or the country’s financial strength will go down the toilet!

Never mind talking about the European debt issues; just look in our own backyard where there’s plenty of work to be done.

Whether it’s President Obama or Republican hopeful Mitt Romney, I don’t care; but the next President will need to focus on deficit cuts and reducing or corralling the national debt, along with a strategy for some of the states to shore up their financial condition.

The problem is that a significant cut in fiscal spending could make the economy worse, according to the Congressional Budget Office (CBO). The CBO predicts the U.S. economy could contract by 0.5% in 2013 if the spending is curtailed.

The problem at this juncture is the high unemployment rate and the decrease in money flowing to the treasury.

While there is no indication of what area the major cuts will impact, they will likely be from the top six budgetary areas comprised of Medicare/Medicaid, Social Security, defense/wars, income security, interest on the debt ($225 billion!), and federal pensions.

My view is that the additional cuts could likely be in Social Security and possibly federal pensions. Realistically, cuts and austerity measures are required.

You cannot go on and print money and hope the national debt problem goes away. Action must be taken. The days of easy money are over.

The market has focused largely on the debt crisis developments in the eurozone and, in the process, ignored this country’s own debt and deficit issues.

Source: http://www.investmentcontrarians.com/debt-crisis/america-the-land-of-debt/559/

By George Leong, BA, B.Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

Copyright © 2012 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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