STELZER: Transforming America

 

The fiscal train wreck is happening sooner than we thought, a leading bond market trader says. Which is why investors are now telling the U.S. government it will have to pay more to borrow money. Not as much more as Greece, but enough to constitute a shot across the Obama bow by what we call the bond vigilantes, investors who try to punish governments that splash too much red ink across national ledgers.

 

The passage of the health care bill has focussed investor attention on the runaway deficit situation, and its long-term consequences. The deficit, which ran to around 3 percent of GDP in George W. Bush’s final year, is now exceeding 10 percent. (Mercy dictates rounding numbers that are in any event estimates; all data from the non-partisan Congressional Budget Office.) Government debt held by the public has gone from 40 percent of GDP when Bush was last in the White House to 63 percent now and will hit 90 percent by 2020. That’s the level at which new studies say debt begins to reduce growth and jobs.

 

Unfortunately, the situation is even worse than reported, figures suggest.

 

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