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  • sky_walker616 sky_walker616 Oct 23, 2013 10:12 AM Flag

    Should we worry about ballooning US debt?

    In hindsight, the recent clown show of government "shut down" and "debt ceiling" was obvious staged. As I have argued earlier, neither side of the political spectrum wants austerity programs to solve the long-term insolvency of US finance. It increasingly looks like that both of the sides have committed to short-term fixes such as expanding the GDP at the same pace as the Sovereign debt in order to maintain relative stable debt to GDP ratio. The demographic engineering through Healthcare Reform and Immigration Reform are some of the temporary measures implemented or considered.

    If this indeed is the plan of those who proclaim to have done the "God's work", then we know that by 2017, the US real GDP would likely reach $19 trillion (CBO and OMG estimates) with an impressive 4+% annual growth. While the total US sovereign debt could reach $20 trillion, the expected GDP to Debt ratio would held relatively stable.

    When, or if, this scenario becomes materialized, the federal reserve might start to remove the backstop, i.e. the trillions of dollars handed over by the Creator (;-)). That is when the global equity market might get volatile, again. But, before that actually happens, the Federal Reserve will likely continue to pump the "Almighty Credit" into the global economic system, prompting the participants in the economy to become more "willing" to engage in the transactions so as to create the money needed to boost the economy.

    Some prudent people might ask: what happen when the positive effects of these temporary fixes wear out and the negative effects become dominant many years from now? Since I am no genius nor wizard, I would say: do not need to worry about it because you are dealing with benign "Invisible Hand" here. In the worst scenario, a global debt RESET could be executed, and every country will have a clean balance sheet to start with

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