More National Debt Storm Clouds Roll In

by Bryan Perry | January 19, 2012 4:23 pm

Despite the overall improvement in the market, I’m still having a hard time understanding how the economy can foster genuine, sustained growth. Consider the number of ill winds kicking up:

First, there’s the multibillion-dollar cloud of belated “robo-signed” foreclosures that are about to hit our fragile real estate system. Then, you’ve got the donnybrook Congressional environment taking up arms again in March when the stop-gap payroll tax cuts expire. There’s also the “gloves off” Presidential campaign that is quickly picking up speed, which you can count on to essentially stall all vital and necessary legislation until 2013. Finally, there’s our Federal Reserve, which has few to no arrows left in its quiver to address another economic downturn.

So let’s enjoy this period of optimism while we can. The soaring national debt has reached a symbolic tipping point, and it won’t be long before the market must confront this reality.

A recent article in USA Today[1] reveals that the total debt owed by the federal government, including IOUs to government retirement and other programs, has reached $15 trillion. That’s as big as the entire U.S. economy.

The value of all goods and services produced by the economy was $15.17 trillion as of September 2011. By December 2011, private projections expect the economy to have grown to $15.3 trillion, with anticipation of that level being surpassed this month.

Remember the Simpson-Bowles Commission? That’s the one appointed by President Obama to find ways to reduce America’s national debt. Well, the commission’s findings were not to the president’s liking. Essentially thrown out by the Obama administration for what I view as ideological reasons, the report suggests that the national debt will continue to grow faster than the U.S. economy, which would have to expand by at least 6% per year to keep pace.

That’s like believing in fairy dust.

Obama’s 2012 budget shows the debt soaring past $26 trillion a decade from now. This dire warning has been effectively sidelined for months by mainstream media and a do-nothing Congress, but it will resurface as a pivotal soapbox issue and will have a huge impact in the election’s outcome.

Both this and the data cited above should make us all understand that swinging from vine to vine like a Johnny Weissmuller in a Tarzan film only works in Hollywood and is not to be acted out in real time with real people and real money. It simply can’t go on.

Endnotes:
  1. USA Today: http://www.usatoday.com/news/opinion/letters/story/2012-01-15/national-debt-military-cuts/52584828/1

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