Massive Deficits Plague the U.S.
More News related to General News
- Larry Summers Claims Lobbyists Are Slowing Down Financial Reform
- U.S. FDA to Become More Stringent on Medical Imaging Equipment (GE, SI)
- Stocks Rally On Hopes for a "Big Fat" Greek Bailout
- comScore (SCOR) Reports e-Commerce Spending Up Marginally for Q409 (AMZN, EBAY, BKS, MALL, More...)
- Cadbury (CBY) to Continue Idling of Somerdale Manufacturing Facility, Despite Talks with Kraft (KFT)
A New York Times piece today highlighted the terrible dilemma facing the U.S. - the ballooning deficit and massive amounts of cash needed just to service the debt.
The White House is estimating that the payments for servicing the $12 trillion in national debt will exceed $700 billion in 2019, up from $202 billion this year.
This estimate comes as the Treasury continues to deal with issues surrounding the massive debt, a eminent balloon of short-term debt, and interest rates that are going to need to climb back to normal rates once the Fed decides that the weak economy has receded.
The $500 billion jump in interest expenses from the national debt would currently surpass the combined federal budgets this year for education, energy, homeland security and the war in Iraq and Afghanistan.
The massive amount of borrowing over the last year in response to the recession was widely accepted as the proper choice; however the result of the long-term budget crisis is something that the Treasury will have to deal with as a result of government stimulus efforts.
The record deficits are accumulating as the government faces a challenge not dealt with to date. There is going to be an explosion of people that will qualify for Social Security and Medicare in the near future as the oldest baby-boomers crest near 65.
The conditions that have caused the current and future government financial issues are beginning to fade. Global investors are again shifting money into riskier investments such as stocks and corporate bonds, while also pouring money into rapidly developing regions such as China and Brazil.
The U.S. will not be alone in facing enormous financial debt in the coming years, as notoriously industrial nations such as Japan, Germany and Britain will all stare-down their own troubles in recovering following this recession.
Subsidizing the pressure on the Treasury is the Fed's plans to start paring down the steps it took to meet the needs of the nation's financial system. The Fed's purchases of Treasury bonds and mortgage-backed securities pushed the long-term interest rates down to the current lows. The removal of the support could potentially add $40 million to the current total of services for the national debt.
How the government deals with these obstacles will determine the future health of the economy and proper handling will need to be implemented in order to avoid another financial disaster down the road as a result.
Hopefully the current administration and Congress will have the courage to take steps to deal with the deficit problem Giving lip-service to the problem is just as bad as ignoring it.
Link to NY Times Article
Related ETFs:
iShares Barclays 20+ Year Treas Bond (NYSE: TLT)
iShares Barclays 1-3 Year Treasury Bond (NYSE: SHY)
iShares Barclays 7-10 Year Treasury (NYSE: IEF)
PowerShares DB US Dollar Index Bullish (NYSE: UUP)
PowerShares DB US Dollar Index Bearish (NYSE: UDN)
Stocks Mentioned
Related Entities
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
