U.S. Debt: “A Ticking Time Bomb”

By WorthyNews Staff

WASHINGTON, D.C. (Worthy News) — The United States faces a financial “time bomb” as its national debt is to jump by $2 trillion this year and United States President-elect Barack Obama and congressional Democrats consider a massive spending package, economists have warned.

The U.S. National Debt already stands at nearly $10.7 trillion, of which $3 trillion is held by foreign investors with China ($652.9 billion) and Japan ($585.5 billion) being the top two creditors, according to official estimates.

Within a year, 40 percent of debt held by private investors will mature, said Treasury officials quoted by The Washington Post newspaper. Short term investors are giving the government money virtually for free, as interest rates on Treasury bills have plummeted to historic lows, analysts said.

Some analysts fear that foreign investors, the largest U.S. creditors, may prove unable to absorb the skyrocketing debt, which they warn could undermine the confidence in the dollar.

DEBT DEMAND

“While the current market for T-Bills is booming, it’s unclear whether demand for debt can be sustained,” added Lou Crandall, chief economist at U.S.-based independent research firm Wrightson ICAP, in comments published by The Washington Post. “There’s a time bomb in there somewhere, but we don’t know exactly where on the calendar it’s planted,” the paper quoted him as saying over the weekend.

On Saturday, January 3, the Cable News Network quoted Kim Rupert, a fixed income analyst with the Action Economics research firm, as saying that “Treasurys are overbought and perhaps in a bubble, when the mood changes, it will be a case of everybody out the door at the same time.”

Last year, Moody’s Investors Service warned that skyrocketing costs of entitlement programs because of the retiring baby-boomer generation, could endanger the U.S. Bond rating, and reduce confidence in the dollar.

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