The Time Bomb of Global Government Debt and Deficits is Ticking Louder

Living beyond one’s means is a path to long term pain. That path is upon our nation and many others around the world.

The cost of funding the global government debt and deficits will continue to serve as a drag on our economic future. While financial wizards may believe the debts can be postponed, the simple fact is in the midst of a sluggish economy, global governments will not generate sufficient tax revenues to fund spending programs and the deficits. What does this mean? Lessened spending, increased taxes, and assorted other measures of fiscal austerity.

The Financial Times provides a fabulous review on this topic today in writing, Public Finances: Daunted by Deficits

Advanced economies entered the financial crisis in 2007 with an average budget deficit of 1.1 per cent of national income. By this year the figure had risen to 8.4 per cent as tax revenues plummeted and humbled banks were bailed out. General government gross debt is set to rise from close to 73 per cent of national income in advanced economies in 2007 to more than 110 per cent by 2015, according to the International Monetary Fund.

Dominique Strauss-Kahn, IMF managing director, says this global rise in public debt requires countries to aim at rapidly reducing borrowing so debt ratios can begin to fall – something he warns will require a sizeable and “sometimes unprecedented” effort. There is little alternative, he adds, as “failing to do so would ultimately weaken the world’s long-term growth prospects”.

Policymakers appear to have got the message. Across the world – from the US to Greece – plans are under way to cut spending and raise taxes. The UK on Tuesday became the latest country to join in the cutting crew. It follows Germany, Spain, Italy and Portugal, which in recent weeks have all also unveiled austerity budgets.

Some differences are already apparent. Advanced economies are initially planning to rely more on spending cuts; emerging countries have plumped more heavily for tax increases. No one is sure what the combined effect of this will be on global growth, but there is sufficient concern about the consequences that the US has put it on the agenda for this week’s meeting of the Group of 20 leading economies.

Add it all up and the simple fact is our domestic economy and the global economy are in for real challenges. Robust recovery? I don’t think so. The following pictorials paint a very ugly picture for what lies ahead. I direct you to the pictograph in the lower right which projects that the U.S. Gross Debt as % of GDP will approach 110% in 2015.

We can not live like that. We will be strangled simply by our debt service. Compare that figure to the debt to GDP percentage run by Iceland and Greece. “Rut-ro Rorge!!”

Will America wake up and understand that the ticking time bomb representing our national debt is getting louder and louder?? Does Washington have any appreciation for this?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

Visit: Sense On Cents

Be the first to comment

Leave a Reply

Your email address will not be published.