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We Can’t Ignore It: America’s Going Broke

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We Can’t Ignore It: America’s Going BrokeThe U.S. national debt just surpassed the $16.0-trillion level and is accelerating with each passing minute. The problem is that with the U.S. economy slugging away and an unemployment rate of 8.3%, there are also less tax revenues to collect, which will ultimately impact the government’s balance of tax revenues and spending.

Ironically, while the U.S. is advising the eurozone countries to deal with their own European debt crisis (read “Global Economies Waving a Red Flag”), there is a growing and significant debt issue at home, but no one seems to want to discuss this.

I’m sure the pre-election talks will focus on the debt problem.

Spain has a national debt of around 712 billion euros, about US$892 billion or about US$19,391 per citizen. The European Central Bank’s (ECB) bond-purchasing program will help in the short term, but there needs to be a longer-term solution to deal with the financial crisis.

But while the economic situations in Spain, Italy, Greece, Portugal, and Ireland look bad, everyone seems to be somehow ignoring the massive $16.0 trillion of national debt in the U.S. That’s $50,921 per citizen, or more than double the debt of the Spaniards. The U.S. national debt is mounting and not going away anytime soon. Worst of all, it’s growing at an alarming rate every minute. The only plus here is the country’s low bond yields. If the U.S. had to pay out the high yields Spain does, the U.S. would be broke and facing a credit crisis.

This national debt will take decades to pay off or even get it to more manageable levels.

The reality is that something drastic needs to be done regarding the national debt, or the country’s financial strength will go down the toilet!

Never mind talking about European debt issues, just look at the work to be done in our own backyard.

Whether it’s President Obama or Republican hopeful Mitt Romney, I don’t care; but the next president will need to focus on deficit cuts and reducing or corralling the national debt, along with a strategy for some of the states to shore up their financial condition.

The problem is that a significant cut in fiscal spending could make the economy worse, according to the Congressional Budget Office (CBO). The CBO predicts the U.S. economy could contract by 0.5% in 2013 if the spending is curtailed.

While there is no indication of what area the major cuts will affect, they will likely be from the top-six budgetary areas: Medicare/Medicaid, social security, defense/wars, income security, interest on the debt ($225 billion!), and federal pensions.

In my view, the additional cuts could likely be in the social security and, possibly, federal pensions areas. In reality, cuts and austerity measures are required.

The U.S. Treasury cannot continue printing money and hope the national debt problem goes away; the days of easy flowing money are over. Action must be taken.

The market has focused largely on the debt crisis developments in the eurozone and in the process has ignored this country’s own debt and deficit issues.

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About the Author, Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »

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