The market is focused on the debt situation in Spain, with the country hindered by a national debt of around 712 billion euros or about US$892 billion, which equates to about US$19,391 per citizen. This is why Spain is seriously concerned about the 10-year bond yield at near seven percent. Paying these high financing costs and trying to cut down its national debt and manage its budget will not be easy. Spain is asking for help. The reality is that the eurozone and Europe are in serious trouble, which I recently discussed in Eurozone Weakness: Don’t Take it Lightly!
But, while the Spanish situation and those in Italy, Greece, Portugal and Ireland look bad, somehow everyone seems to forgotten the $15.75 trillion in national debt in the U.S. That’s $50,215 per citizen or more than double the debt of the Spaniards. And the 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 our low bond yields. If the U.S. had to pay out the high yields Spain does, the U.S. would soon find itself broke and facing bankruptcy.
This national debt will take decades to pay off or even get it to more manageable levels.
Something drastic needs to be done soon regarding the national debt or the country’s financial strength will go down the toilet! Never mind talking about the European debt crisis; just look in our own backyard and you’ll see there’s plenty of work to be done.
Whether it will be President Obama or the new Republican hopeful, Mitt Romney, I don’t care; but the next President will need to focus on significantly cutting costs and reduce the national debt along with a strategy for some of the states to shore up their financial condition.
The problems at this juncture are the high unemployment rate and resulting less money for the IRS. The official amount of unemployed is around 12.55 million, but the actual unemployed number around 22.26 million. Some job market watchers suggest that the true number of Americans unemployed, underemployed, or simply not in the workforce could be as high as 65 million.
President Obama has announced there will be cuts to relieve the deficit and national debt; but, if there’s a change in leadership, everything goes back to the table.
While there has been no indication of where the major cuts will be from, they will likely be from the top six budgetary areas: Medicare/Medicaid; Social Security; Defense/Wars; Income Security; interest on the debt ($226 billion!); and Federal Pensions.
Where I think there will be additional cuts will be Social Security and possibly Federal Pensions. The reality is that cuts and austerity measures are required. The PIIGS are cutting back on spending to avoid default. The U.S. is no different. You just cannot go on and print money and hope the national debt problem goes away. Action must be taken.
The days of easy flowing money are over.
The stock markets have focused largely on the debt crisis developments in the eurozone and, in the process, have ignored this country’s own debt and deficit issues.
At the same time, the U.S. also needs to be careful, as the economic renewal remains flat; albeit if the debt and deficit are not dealt with, we would likely see further problems around the corner and a potential cut in the U.S. credit rating from the current AA+.
The bottom line is that action must be taken.