Thursday, June 24, 2010
America's Ticking Debt Bomb: Like Greece, "Only Worse," Pento Says
Posted Jun 24, 2010 08:58am EDT
America's debt bomb is ticking and is likely to detonate in five years or less, says Michael Pento, senior market strategist at Delta Global Advisors.
"It could be much sooner when we hit the debt wall," Pento says. "My opinion doesn't matter: Math tells me we're in a serious problem."
The math Pento refers to is the Treasury Department's recent estimate that total
U.S. debt will top $13.6 trillion this year and rise to 102% of GDP by 2015. Moreover, the publicly traded debt (debt excluding intra-governmental obligations) will rise to $14 trillion by 2015, up from "just" $7.5 trillion in 2009.
At $14 trillion, the interest payments on the public debt will total about $1 trillion in 2015, he continues; even assuming solid growth and low inflation, that would equal about 30% of total government revenue. "What do you think that does to our bond market?," Pento wonders. "It leads to a dollar crisis and a bond market crisis. That's why gold refuses to go down. "
Demand for U.S. Treasuries and the dollar currently remain high, especially in the wake of the euro's slow-motion implosion. Pento admits timing this debt crisis is difficult but predicts we'll be "like Greece, but worse," in four years or less, unless we make a sudden turn toward austerity. "When we hit the debt wall it's going to be extremely pernicious, and quickly."
The only way to avoid this catastrophe, Pento says, is to "rip off the Band-Aid" and cut government spending dramatically. (Unlike Europe, he says we should cut taxes, rather than raise them.)
"You're going to have your recession/depression in the short term but on the other side of that you're going to have a viable currency a viable bond market and a viable economy," he says.
In other words: rather than continuing to kick the can down the road, Pento says we should trade short-term pain for long-term gain.
Labels:economy Collapse Meltdown Michael Pento
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