US debt = Britain. The country, that is.

I believe we’re officially at the point where the economic mess we’re in can no longer be blamed on the prior administration:  Time since election = 18 months, time since inauguration = 16 months, time since the stimulus plan became law = 15 months.

Keith Hennessey does a very nice job of illustrating an assortment of debt scenarios under BHO’s plans, taking into account various assumptions – including/excluding TARP, excluding 1/2/3 years to “clean up” what he inherited, etc.  Bottom line:  get ready for a huge, jobs-killing tax increase on everyone including the middle class.

As Edmund Conway explains in the Telegraph, it’s not just the level of debt that is the problem, but the short-term maturity of that debt:

Then there’s the fact that the US has a far shorter maturity of government debt than most other countries, meaning that even if it weren’t borrowing any extra cash it would have to issue a large chunk of new stuff each year as things are. The killer table to show you that is this one, which shows a country’s “gross financing needs” – in other words how much debt it has to issue in the coming years to keep itself functioning.

Click to enlarge

What does this mean? Basically with a large financing need, you are particularly vulnerable if the market suddenly decides it doesn’t want your debt, since those extra interest rates they charge you mount much more quickly.

But all of the above is what explains why the US, according to the IMF’s projections, has more to do than any other country in the developed world (apart from Japan) when it comes to bringing its debt back towards sustainable levels. Here’s the killer table. The column to look at is on the far right: note how the US needs a 12pc of GDP chunk chopped out of its structural deficit (ie adjusted for the economic cycle). That’s $1.7 trillion. Wow – that’s not far off Britain’s total annual economic output.


Advertisements
This entry was posted in Economics. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s