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US economy – Deep down in about $15 trillion debts
Submitted by Rick Murphy on Thu, 03/29/2012 - 23:22.
US economy is deep down in mammoth federal debts. The total amount of debt has already exceeded $15 trillion; the number is supposed to grow in coming days. Almost 2/3rd of the total amount is owed to public, foreign governments and companies through notes, bonds and Treasury bills. The Federal government has hardly any option to pay off the debts and become ;;;;;
The US debt level
Debt level is calculated as a percent of a country’s Gross Domestic Product or GDP. The GDP was almost $15.33 trillion during Q4 of 2011. Present US debt to GDP ratio is over 100%. In spite of low interest rates, the country has paid $450 billion as interest on the debt in FY2011.
The reasons behind huge US debt and poor US economy
There are a number of reasons that contribute to mounting amount of US Federal debt.
Poor credit rating; Bad patch on US economy
In 2011, for the first time, the United States has received poor credit rating from Standard and Poor’s. The bureau has made it clear that Whitehouse’s unwillingness to implement effective deficit reduction measures is the main reason for this downturn.
US economy - Boosting factors
US economy, however, gets benefits from two major factors; the Social Security Trust Fund and foreign holdings of US Treasury Bonds. Nevertheless, these factors are not going to work effectively in coming days.
How huge debt affects US economy
Over next 2 decades, the Social Security Trust Fund and foreign holdings of US Treasury Bonds may not help US economy as before. The Social Security Fund is likely to be short of funds to provide Baby Boomers with adequate retirement benefits. It would result in higher taxes as the country may stop taking further loans from foreign countries. Even if the amount of retirement benefits is curtailed, then also the country may not be able to become debt free.
Foreign investors may not invest in US Treasury Bonds anymore. They may invest in their own countries instead of investing in US Treasury Bonds in future. Reduced demands for US Treasury Bonds may add to interest rates and thereby slow down the economy. It would also result in reduced value of dollars as well as less attractive US economy.
In conclusion, it can be said that current US Federal debt amount is really alarming for the nation’s overall economy. If Whitehouse fails to find out effective ways to support the economy, the amount will grow even more and the country will lose chance to become debt free.