Treasury Secretary Tim Geithner pledged that the U.S. will maintain its AAA debt rating. He was responding to the announcement that the UK rating was downgraded to negative by Standard & Poor today. Geithner promised that the U.S. will lower its budget deficit from its current 12.9% of GDP to a 3% target. However, this may not be enough.
The U.K. national debt is 100% of GDP. The U.S. is getting close to that. The Federal debt is currently at $11.2 trillion. This is around 70% of GDP. President Obama's FY 2009 budget deficit will add $1.7 trillion, and another $1.17 trillion in FY 2010. That means the debt could be as high as $14 trillion by 2010, nearly 90% of projected GDP.
The U.S. government is increasing the debt levels to spur the economy out of the worst recession since 1982. It is financed by sale of U.S. Treasury bonds, which are still relatively safe investments for foreign buyers such as China and the Japan.
Although this is not a healthy situation for the U.S. economy, deficit spending is needed to stimulate the economy out of recession. By 2010, the economy is expected to return to normal growth rates.
Budget deficits are currently projected at $500 billion per year to pay for mandatory programs such as Social Security and Medicare. To cut deficits, these programs may also need to be cut.
What It Means to You
High debt levels will ultimately lead to slower economic growth. Yields are already rising to encourage continued purchasing of Treasury bonds. This will lead to higher interest rates.
Reduced Social Security benefits translates to less government support for your retirement. It's best to plan now for part-time work after you turn 65. Focus on living healthily to make sure you can still work in your older years, as Medicare benefits will probably also be reduced.
Comments
The governments problem is printing…printing money. They have made the dollar unacceptable in some countries because they know our dollar has no value. We will not be able to purchase goods overseas, with our currencency..our people are going to experience terrible things in the next year or two. We must all plan and realize savings is a waste of time. Use your money for gold or silver..it will put food on your table.
it seems that i as a consumer of USA products in my child and young adult years I agree with the devaluation of the American dollar. Where did “Made in the USA” go. As a canadian I fully suport Obama theory of economics, lowering the purchasing power of the american dollar and giving the USA a manufacturing edge. Buy our Canadian oil and let the USA and Canada set there own price for oil. Let the market place return to made in the USA. Art C. Bergstrom, Canada