Don’t Come Knocking on My Door
Monday, June 13th, 2005
By George Leong, B.Comm. for Profit Confidential
When I’m bullish, I like to see positive trends develop. When I’m bearish, trading downward trends by shorting can generate some outstanding returns. But a trend that has been developing to the point where I’m concerned is the country’s national debt.
I must say that each time I look at the national debt meter, I’m shocked. As of June 9, 2005, the current public debt in the United States stood at a whopping $7.79 trillion! That’s a debt of $26,300 for every U.S. citizen, including children, the retired, and the unemployed.
Now, as if it couldn’t get worse, even the homeless people on the streets are technically counted in for their share of the debt. And it’s still growing. Consider this fact: The national debt is compounding at $1.64 billion or $5.54 per person each day!
I’m not sure about you, but I expect things could get a lot worse in the foreseeable years, as baby boomers leave the workforce and no longer pay income tax. Instead, they will place a drain on Medicare, Social Security, and the economy, starting in about 2010. Somehow this expected shortfall must be dealt with over the next few years.
The non-partisan Congressional Budget Office (CBO) is warning us that the deficit could be “catastrophic” if it’s not dealt with. The CBO has predicted a deficit of $400 billion this year and a ramp up to a cumulative deficit of $1.3 trillion from 2005 to 2014, a 60% jump from an earlier forecast four months ago. Not sounding that good, is it?
The deficit could even be worse than it seems, since it doesn’t include any major tax cuts. It also doesn’t help that the Iraq war has been a massive drain on the U.S., as far as the deficit is concerned. And with the cost to protect America from terrorism on the rise, the debt will only mount only with it. Add in the current legislation to add a 10-year, $400-billion prescription drug benefit to Medicare, and we could be in big trouble. In fact, the deficit estimate may be conservative.
In his 2005 budget, President Bush already acknowledged the growing problem, and he has already initiated cuts to more non- essential programs. The reality is, unless the trend is reversed, there will be problems. More programs will have to be axed or reduced, or the major tax cuts will have to be eliminated. It’s also conceivable that taxpayers will have to pay more to the IRS. This would, in turn, impact spending and economic growth in the country. The third alternative would be to let the deficit run rampant. This would force more borrowing by the government and a surge in interest costs. The CBO is saying that spending on healthcare and social security, along with paying the interest on the federal debt, may rise to 21% of the economy by 2075, up from the current 8%. Ouch!
I’m not sure about you, but I will be stashing a few extra bucks underneath my mattress, just in case! As for that $26,300 debt per citizen, don’t even think about collecting from me!
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
