Tuesday, January 12, 2010

Fitch: U.S. State and Federal Debt to Hit 94% of GDP

How fast is government debt growing in the United States?details how serious the situation is:

Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders.

Brian Coulton, the agency's head of sovereign ratings, said the US is shielded for now by its pivotal role in global finance and the dollar's status as the key reserve currency, but the picture is deteriorating fast enough to ring alarm bells...

Mr Coulton said the US is vulnerable to "potential interest rate shocks" due to its reliance on short-term debt and foreign investors. The average maturity of US government debt has fallen to four years, compared to seven for Europe's AAA club, and 10 for Britain...

This raises the danger of a roll-over crisis. Chinese, Japanese, and Mid-East investors own almost half of the stock of US debt. They are more likely to liquidate holdings than domestic investors, if there were a loss of confidence in Washington or the Federal Reserve. Short maturities mean that any jump in interest rates will be felt quickly.

The further problem is that the public at large and the Administration are aware of the situation. This may lead to cover for Obama and Rahm "Never Waste a Crisis" Emanuel to call for huge tax increases, and I mean huge. The other part of the equation, a reduction in government spending is rarely discussed, and if it is, it is generally just window dressing.

Beware the debt warnings. The debt danger is real, but it will probably mean a grab for your wallet. And, you will know damn fast what Third World countries felt like when the IMF came in to those high debt countries and demanded the government raise taxes on the people.


  1. "....And, you will no damn fast...."

    Learn to spell dude!

  2. msadams,

    I think the words you were looking for are punctuation. We never begin a sentence with the word "and" nor should it be followed by a comma as well as the incorrect synonym for "know".

    People in glass houses.............