The Treasury Department’s projection that U.S. debt will reach $19.6 trillion by 2015 brings the ticking debt bomb five years closer to exploding than previously projected, says Delta Global Advisors’ Michael Pento.
He warns that time is running out to do something to avoid such an economic doomsday.
The Treasury also estimated that total U.S. debt will top $13.6 trillion this year and rise to 102 percent of GDP by 2015, and that publicly traded debt would reach $14 trillion by 2015, up from last year's debt of “just” $7.5 trillion.
“The problem is that growing GDP when debt levels are so high is extremely difficult,” Pento wrote in a note to investors.
“Since our overleveraged economy was the cause of the great recession, how can we avoid going into a double-dip recession if leverage is still being added?” he asks. “There can be no real long-term solution other than a protracted period of increasing our savings as we increase our production.”
“It will be a long, slow and painful process but one that is absolutely necessary to engender a healthy economy.”
Strong capital inflows and leverage cycles go hand in hand, notes Societe Generale economist Aneta Markowska.
Markowska added that recent revival of foreign investors’ interest in U.S. agency securities marks a “remarkable reversal” of the trends witnessed in 2007 and 2008, when capital inflows ceased, triggering a collapse in U.S. consumer spending and a rise in household savings.
“By sending capital to the U.S. and pushing bond yields down, investors are not only giving the U.S. their blessing to spend, but are effectively encouraging dis-saving,” Markowska told DNA India.
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