It’s no secret that the federal government is racking serious amounts of debt. It was bad before the recession started but the last couple of years have exacerbated the issue. The budget deficit is over $1 trillion this year and this trend is expected to continue for a few more years. Our national debt should then balloon to around $15 trillion from its current mark of just below $12 trillion.
The question is how much longer can the government cover their debts and interest before it becomes an issue of paying the bills. Well, according to Moody’s (you remember, one of the corporate credit rating agencies) a few more years of this is all that can be handled. In fact, the deficit needs to be reduced or the United States risks losing their good credit ratings.
Right now, the United States is considered the most financially sound place in the world. No other government or corporation can beat it. This is why so many interest and discount rates use the US treasuries are benchmarks, and why when investors are scared of the market they put their money in US treasuries.
If the government can’t make the payments on the debt they’ve issued, they risk defaulting which could have global repercussions. The US has never had to worry about this because they can always raise taxes if they need to, and if need be, cut expenditures. These have their own consequences which need not be discussed here.
So the question really is how much debt can the United States government have before it becomes an issue? No one really knows, but Moody’s is certainly pretending to know. But ever since the three agencies were called into question for their motivations behind good credit ratings on CDOs, I’ve had less and less respect for these organizations.
Nevertheless, the United States government absolutely must reign in their debt. I’m tired of wasting hundred of millions of dollars on interest payments to other countries that buy our debt. Our taxes are already going to have to be raised to cover this debt, I really wish the government would treat this money spending with the respect it deserves. It’s only a matter of time before the discussion moves from what might happen if this continues, to holy crap Washington DC was just renamed New Beijing.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. |
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Said,
No worries! What I’ve learned from the raging debate over at FS on the flat tax is that we don’t need to curb spending! All we have to do is tax the “rich” to high heaven and all will be solved!