“The Looming National Debt…Only One Solution” - August 31,2009

This week is the last full week before the Labor Day holiday, and it should be relatively quiet in the stock markets…because it will be quiet on the data front – nothing likely to shake up the markets is due out this week.

But there is one looming topic that the markets are very concerned about and will be watching both Fed Chairman Bernanke as well as Congress to see how they intend on dealing with it…It’s the national debt.

The concern is big…because the arithmetic is shocking…as well as simple:

Last year the Federal Government spent over $450 billion on interest payments to holders of the National Debt…the 3rd largest expense item in the Federal budget. Compare that to $15 billion for NASA, $61 billion for Education, and $56 for the Department of Transportation.

· The last time the U.S. effectively had no debt was in the 1830s;
· It took 150 years for the national debt to reach $1 trillion …in 1981;
· And only one decade to triple it…to over $3 trillion in 1990;
· And it is now quadruple that…or $13 trillion this year….almost the same size as the overall economy.
· It will grow by over $1 trillion every year for the next decade.

How do you pay off this huge bill? New taxes? There are not enough people even at all income levels. There are only two ways to get rid of big debt…you earn more money to pay it off…or you default. This fall the markets will be watching Bernanke and Congress for some creative answers…not to spread the wealth…but to boost it.