Tagged: US debt

Increasing US debt poses national security threat: Clinton

MSN | PTI | 08/09/2010

us-debt-sinking The increasing American debt poses a national security threat, US Secretary of State today warned, saying it could impact Washington’s ability to exercise "global leadership". "Today more than ever, our ability to exercise global leadership depends on building a strong foundation here at home," Clinton said. "That’s why rising debt and crumbling infrastructure pose very real long-term national security threats," she said in a major foreign policy speech at Council on Foreign Relations, a Washington-based think tank. She warned the increasing debt poses a national security threat, saying the Obama Administration is focusing on this crucial aspect of the country’s economic policy.

She said US President Barack Obama understands this. "You can see it in the new economic initiatives that he announced this week and in his relentless focus on turning the economy around," Clinton said. The rising debt levels pose a national security threat, and it poses a national security threat in two ways, she explained later in response to a question. "It undermines our capacity to act in our own interest, and it does constrain us where constraint may be undesirable. And it also sends a message of weakness internationally," the top diplomat said. She underlined that it is very troubling that the "we are losing the ability not only to chart our own destiny but to have the leverage that comes from this enormously effective economic engine that has powered American values and interests over so many years".

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Obama warns G20 leaders on budget cuts

BBC News | Friday, 18 June 2010 | 14:31 GMT

Obama Barack Obama has warned against cutting national debts too quickly as it would put economic recovery at risk. In a letter to G20 leaders, the US president said that while it was important to put in place "credible plans" to cut deficits, withdrawing economic stimulus early was dangerous. "[In the past] stimulus was too quickly withdrawn and resulted in renewed hardships and recession," he warned. But Mr Obama said the US would still aim to halve its own deficit by 2013. The US budget deficit would be cut to 3% of GDP by 2015, the president said.

The leaders of the world’s 20 leading economies are due to meet in Toronto on 26 June. Mr Obama said the priority of the meeting should be "to safeguard and strengthen the recovery". The BBC World Service’s economics correspondent Andrew Walker said the letter appeared to express the US administrations reservations over recent changes in economic policy in Europe. "There has been a marked change in emphasis in the G20 in the last few weeks," he said. "For many of the group’s member countries, especially in Europe, the case for stimulating economic recovery using the public finances has been overtaken by concerns about stabilising government debt."

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Stocks Sinking to Crash Low Signals Worse to Come

Bloomberg | May 21, 2010 | 17:16 EDT

Any investor who wants to gauge how serious the stock market’s retreat is need only know the Standard & Poor’s 500 Index has fallen below its low on May 6, when panic selling prompted calls for reform. The equity index retreated 3.9 percent yesterday in its biggest loss in 14 months, sinking to 1,071.59, and slipped as low as 1,055.90 today. That compares with 1,065.79, the low two weeks ago when $862 billion was wiped out in 20 minutes. The options market benchmark known as the VIX soared 30 percent to 45.79 yesterday, meaning expectations for volatility are the highest in 13 months. Europe’s debt crisis has pushed the S&P 500 down 12 percent during the past month as concern grew that deficits in Greece, Spain and Portugal will unhinge the global economic recovery. Regulators have proposed six potential causes of the May 6 crash, including losses in exchange-traded funds and an unwillingness to match orders among some electronic traders.

“As far as we know, it’s not a computer error today,” Jerome Dodson, who oversees $4 billion as president of Parnassus Investments in San Francisco, said of yesterday’s slump. “The May 6 flash crash was driven by technical troubles and didn’t reflect any fundamentals. It’s surprising that regular trading would take us down to the same levels as a technical glitch.” The S&P 500 surged in the final 20 minutes of trading today, posting a 1.5 percent gain to 1,087.69 as of 4 p.m. in New York.

200-Day Average

The decline in U.S. shares deepened yesterday after the June futures contract for the S&P 500 fell below its 200-day average for the first time since July 2009, a bearish sign to traders who base investments on price 

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Roubini Says Rising Debt Leads to Inflation, Defaults

Bloomberg | April 28, 2010 | 18:44 EDT

Nouriel Roubini Nouriel Roubini, the New York University professor who predicted the U.S. recession more than a year before its start in December 2007, said rising sovereign debt from the U.S. to Japan and Greece will ultimately lead to higher inflation or government defaults. “While today markets are worried about Greece, Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems,” Roubini, 52, said today during a discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. Increasing tax revenue won’t be enough “to save the day.” Roubini’s remarks underscore statements by officials such as Dominique Strauss-Kahn, managing director of the International Monetary Fund, that the global economy still faces risks. Credit-rating cuts on Greece, Portugal and Spain in the past two days are spurring investors’ concern that the European deficit crisis is spreading and intensifying pressure on policy makers to widen a bailout package.

“The thing I worry about is the buildup of sovereign debt,” Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel. If the issue isn’t addressed, nations will either fail to meet obligations or experience higher inflation as officials “monetize” their debts, or print money to tackle the shortfalls. Michael Milken, founder of the Milken Institute, said the U.S. has the ability to continue selling private and public debt because its markets remain liquid. “I would say it is individual leadership’s fault if they are not taking advantage of today’s markets,” Milken, the junk- bond billionaire turned philanthropist, said on the panel moderated by Matt Winkler, editor-in-chief of Bloomberg News.   

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US in fiscal peril with $12.1 trillion debt


After $787 billion in stimulus spending and $700 billion in bank bailouts, 2010 is fast shaping up to be the year of the federal budget diet. Bipartisan support is growing in Congress for action to stabilize the nation’s bulging debt, which is now $12.1 trillion. Influential experts from former Federal Reserve Board chairman Alan Greenspan to former comptroller general David Walker have joined the cause. The public debt is the amount owed to individual investors, including foreign countries, but excluding money the government owes to its own trust funds. It has soared from $5.8 trillion to $7.6 trillion this year alone — and is more than half the size of the nation’s economy for the first time since 1956.

Without action to reduce that unprecedented rise in red ink, lawmakers and experts say, Washington risks a fiscal crisis. The Congressional Budget Office projects annual interest on the public debt would be about $800 billion by 2019, but the Heritage Foundation’s Brian Riedl and other analysts estimate it could surpass $1 trillion by then. Foreign creditors could refuse to buy more Treasury securities. The focus is on the White House as President Obama prepares his State of the Union address and 2011 budget. Lawmakers and lobbyists seeking to cut the record $1.4 trillion budget deficit and stabilize the debt want Obama to back the creation of a commission that would recommend spending cuts and tax increases and require a vote by Congress. It’s a process that has worked since the 1980s on military base closings.     Continue reading

Morgan Stanley Sees 5.5% Note as U.S. Faces Deficits

Bloomberg | December 28, 2009 | 06:03 EST

If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale. Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said. Investors are demanding higher returns on government debt, boosting rates this month by the most since January; on concern, President Barack Obama’s attempt to revive economic growth with record spending will keep the deficit at $1 trillion. Rising borrowing costs risk jeopardizing a recovery from a plunge in the residential mortgage market that led to the worst global recession in six decades.

“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” Greenlaw said in a telephone interview. “Market signals will ultimately spur some policy action but I’m not naive enough to think it will be a very pleasant environment.” Yields on the 3.375 percent notes maturing in November 2019 climbed 4 basis points to 3.84 percent at 11 a.m. in London today, according to BGCantor Market Data. The price fell 10/32 to 96 5/32. They have risen 65 basis points this month, the most since April 2004, as government efforts to unfreeze global credit markets lessened the appeal of the securities as a haven.     Continue reading