The Burden of Debt

I go on the principle that a public debt is a public curse.

James Madison, 1751-1836

 

Don’t be fooled by the mini stock market rally of late.  The burden of debt (personal, business, state and federal) will continue to weigh heavy on the U.S. and world markets for 2009 and the forseeable future.

 

At the Federal level, the National Debt has soared to $10.7 trillion with obligations that exceed $53 trillion according to Michael Hodges of the Grandfather Economic Report.  According to Hodges this equates to $175,154 per person in the U.S. or a staggering $700,616 per household of four.  In 2009, the Feds will add at least another couple of trillion to that soaring debt as President Obama and Congress seek once again to achieve economic stability through excessive debt spending and record borrowing from the private sector and foreign governments.

 

While global investors look to U.S. treasuries for relative “security” in midst of this economic storm could there be a debt time bomb planted in our midst? Forty-percent of the treasuries that private investors hold will mature in less than one year, requiring the U.S. Treasury to borrow more money – likely through longer term debt securities with higher interest rates. This will further compound the Federal debt picture and dramatically increase the debt obligations of every U.S. taxpayer.

 

With debt hitting record levels in every arena, the U.S. consumer is getting financially squeezed from every quarter and is dramatically pulling in the household expenditures.  This further complicates any potential financial recovery.  With an estimated 170 million credit card holders in the U.S., personal credit card debt alone has escalated to over one trillion dollars according to the credit card industry.

 

With the end of 2008, the Mortgage Bankers Association estimated that the year would finish with an all-time record 2.2 million foreclosures.  Home prices plummeted an estimated 23% in 2008 and 2009 could be even worse for the housing industry.  There is a glut of unsold homes in just about every housing market.  Home prices will continue to decline in 2009.  While this may be good for those seeking to buy, it is not good for those who now sit in homes worth far less than the mortgage they owe.  Along with the shrinking job market in 2009, foreclosures will continue to rise.  Credit Suisse estimates that the next four years will see 8.1 million foreclosures in the U.S.

 

While cutting back on personal spending and focusing on paying down your debt might seem like a “self-fulfilling prophecy” of economic downturn, it is currently the wisest financial move one can make going into 2009 and beyond.

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