Monday , 2 December 2024

Yes, the Debit Crisis Could Spread To The U.S.! Here's Why

From The Blog of HORAN Capital Advisors

 

From The Blog of HORAN Capital Advisors

Source: Center For Financial Stability

Of particular concern for the U.S. is the level of its budget deficit in spite of the fact revenues into the treasury continue to grow. The U.S. currently borrows nearly 39 cents for every dollar it spends. Additionally, interest expense is $241 billion or 6% of the government’s budget. Given the low level of  interest rates on the Treasury’s debt, the 10-year Bond is just over 2%, it would not take much of an interest rate spike in the U.S. to negatively impact the government’s budget.

Absolute Return Partners highlighted comments from the Fed’s summer Jackson Hole Wyoming meeting where the Bank for International Settlements concluded,

“…the debt problems facing advanced economies are even worse than we thought. Given the benefits that governments have promised to their populations, ageing will sharply raise public debt to much higher levels in the next few decades. At the same time, ageing may reduce future growth and may also raise interest rates, further undermining debt sustainability. So, as public debt rises and populations age, growth will fall. As growth falls, debt rises even more, reinforcing the downward impact on an already low growth rate. The only possible conclusion is that advanced countries with high debt must act quickly and decisively to address their looming fiscal problems. The longer they wait, the bigger the negative impact will be on growth, and the harder it will be to adjust.”

Conclusion

The U.S. must address their deficit issues sooner versus later. One significant component will be to create an environment that has a positive influence on economic growth. Additionally, the growth rate in entitlement expenditures must be curtailed. The solutions offered by the…deficit committee in Washington will certainly be important.

*http://disciplinedinvesting.blogspot.com/2011/11/could-debt-crisis-come-to-us.html

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