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[Unfortunately,] for the U.S….its budget deficit is growing in spite of the fact revenues into the 
treasury continue to grow…Given the low level of interest rates on the Treasury’s debt it would not take much of an interest rate spike in the U.S. to negatively impact the government’s budget. [So, in reply to the unspoken question on everyone’s mind, “Yes, the debit crisis could most definitely spread to the U.S.” Let me explain further.] Words: 633
So says David I. Templeton (http://disciplinedinvesting.blogspot.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
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Templeton goes on to say, in part:
Much of the volatility impacting global markets of late is the result of the European sovereign debt issues [with] Italy being the latest country to see its bond rates soar…Italy has €1.9 trillion ($2.6 trillion) in government debt or nearly one-quarter of all euro-zone public debt…The size of these debt obligations could be overwhelming for the EU on top of dealing with the debt issues in Greece. This is the type of contagion the EU is trying to prevent…So how does the U.S. debt structure compare with countries in Europe that are encountering refinancing risk. If one looks at the country debt level, both on and off balance sheet debt, the U.S. is only behind France in terms of liabilities… [see chart below] and the level of debt maturing over the course of the next five years…is larger for the U.S. [see table below] than most other European countries.
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| From The Blog of HORAN Capital Advisors |
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| From The Blog of HORAN Capital Advisors |
Source: Center For Financial Stability
Of particular concern for the U.S. is the level of its budget deficit in spite of the fact revenues into the treasury continue to grow. The U.S. currently borrows nearly 39 cents for every dollar it spends. Additionally, interest expense is $241 billion or 6% of the government’s budget. Given the low level of interest rates on the Treasury’s debt, the 10-year Bond is just over 2%, it would not take much of an interest rate spike in the U.S. to negatively impact the government’s budget.
Absolute Return Partners highlighted comments from the Fed’s summer Jackson Hole Wyoming meeting where the Bank for International Settlements concluded,
“…the debt problems facing advanced economies are even worse than we thought. Given the benefits that governments have promised to their populations, ageing will sharply raise public debt to much higher levels in the next few decades. At the same time, ageing may reduce future growth and may also raise interest rates, further undermining debt sustainability. So, as public debt rises and populations age, growth will fall. As growth falls, debt rises even more, reinforcing the downward impact on an already low growth rate. The only possible conclusion is that advanced countries with high debt must act quickly and decisively to address their looming fiscal problems. The longer they wait, the bigger the negative impact will be on growth, and the harder it will be to adjust.”
Conclusion
The U.S. must address their deficit issues sooner versus later. One significant component will be to create an environment that has a positive influence on economic growth. Additionally, the growth rate in entitlement expenditures must be curtailed. The solutions offered by the…deficit committee in Washington will certainly be important.
*http://disciplinedinvesting.blogspot.com/2011/11/could-debt-crisis-come-to-us.html
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