This deficit problem is getting so out of hand! Expect any of the following:- Interest Rates to go up on homes, autos, and credit cards!
- Corporate Bonds will climb - making it hard to borrow for new plants, equipment, and capital investments!
Another sad bit of this is just how much of this debt accounts for - around 63.2 percent of GDP!
Here is the article. When you seriously look at this, you have to admit that it is sure creepy!
Analysts: Growing Deficit Hobbles Economy
WASHINGTON (AP) -- Like a person packing on pounds, the United States keeps adding to its flabby budget deficits, endangering the nation's economic health and the pocketbooks of ordinary Americans. Here's the worry: Persistent deficits will lead to higher borrowing costs for consumers and companies, slowing economic activity.
As Uncle Sam seeks to borrow ever more to finance those deficits, rates on Treasury securities would rise to entice investors. That would push up other interest rates, such as home mortgages, many auto loans, some home equity lines of credit and some credit cards.
''That's the pocketbook risk to the American consumer,'' said Greg McBride, a senior financial analyst at Bankrate.com, an online financial service.
For businesses, rates on corporate bonds would climb. It would become more expensive to borrow to pay for new plants and equipment and other capital investments.
With a succession of budget deficits, ''you do expect to see higher interest rates. Where we fight about this is over how big the effects are. But they are definitely there,'' said James Feyrer, assistant economics professor at Dartmouth College.
The government's budget deficit last year was $319 billion. While smaller than the record $413 billion in 2004, it still was the third-highest ever.
A White House budget official now predicts that the deficit in the current budget year will top $400 billion, pushed up by the costs of the Gulf Coast hurricanes. The red ink is expected to keep flowing for years.
The nonpartisan Congressional Budget Office forecasts deficits every year through 2015; that is as far out as the office projects. The White House forecast, which runs to 2010, also expects annual shortfalls.
''The budget deficit is like gaining weight. You are not really aware of it until at some point, all of a sudden you can't do what you want to do because you are heavier. Interest rates go up and slow things down,'' said Brian Bethune, economist at Global Insight. ''Then you go to your check up and the doctor tells you you got to lose 25 pounds.''
America's economic doctor is Federal Reserve Chairman Alan Greenspan.
Greenspan, who retires Jan. 31 after 18-plus years at the central bank, repeatedly has urged Congress and the Bush administration to get the country's financial house in order.
Bloated budget deficits, if not curbed, could endanger the economy over the long term, Greenspan warned. Increased government borrowing would drive up interest rates and weigh down economic activity.
''In the end, the consequences for the U.S. economy of doing nothing could be severe,'' he said recently.
The looming retirement of 78 million baby boomers will put massive strains on the country's finances, Greenspan said.
In 2008, the oldest of the boomers will reach 62, the earliest age at which they can tap Social Security retirement benefits. Three years after that, in 2011, they will reach 65 and become eligible for Medicare.
Ben Bernanke, chosen by President Bush to succeed Greenspan, also believes the situation is troubling and that the deficits need to be controlled.
''Budget deficits are a problem,'' he said. ''I think it's important to continue to reduce budget deficits.''
The administration has a goal of cutting the deficit in half by 2009 and plans to do that by restraining spending. The president, meanwhile, is continuing to press Congress to make his tax cuts permanent.
Democrats mostly blame Bush's tax cuts for the government's red ink. The last time the government recorded a surplus was in 2001.
In a worst-case scenario, foreigners who finance the U.S. budget and trade deficits would sour on U.S. investments and unload their holdings. The prices of U.S. stocks and bonds could plunge. Interest rates, including those for mortgages, could soar. A financial crisis could confront the country.
Economists are troubled by the prospects of budget deficits as far as the eye can see and want to see them trimmed. But the size of the current budget deficits, while unwelcome, do not signal that a crisis is imminent, they said.
An important barometer is the size of the federal debt -- now about $8 trillion -- relative to the overall economy, as measured by gross domestic product. Under that measure, this debt accounts for around 63.2 percent of GDP, Bethune said.
''Generally speaking, when it is over 75 percent of GDP, then the yellow flag goes out. I would say 95 percent of GDP and over is definitely a red flag,'' Bethune said.
The government produces a budget deficit when its total spending exceeds its total revenues. Budget deficits cause the government to borrow more money by selling Treasury securities to domestic and foreign investors. That additional borrowing increases the government's debt.
Despite the recent string of large budget deficits, long-term interest rates in the U.S. have behaved well. In fact, relatively low long-term rates around the world have puzzled economists and spawned a number of theories. Some experts believe too little investment worldwide may be behind this; others believe too much savings is the reason.
From an economic point of view, there is more concern about higher borrowing costs over time crimping business investment and ultimately the production of goods and services, economists said.
''Low investment is bad. That's going to mean lower productivity and lower production in the future, which has a cost on society,'' said Erik Hurst, associate professor of economics at University of Chicago's Graduate School of Business.
People who save would benefit, assuming inflation stayed under control. If the deficits fanned inflation, then the Fed would need to boost interest rates, pushing a whole range of borrowing costs even higher.
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This sure is something, huh! Now, if I may add insult to injury, you should find these headlines to be quite disturbing!
Deficit Will Climb in 2006, White House Says
WASHINGTON, Jan. 12 - The White House acknowledged on Thursday that the budget deficit would climb back above $400 billion this year, erasing the brief improvement last year and complicating President Bush's vow to cut the deficit in half by 2009.
Joel Kaplan, the White House deputy budget director, predicted that the government's shortfall would climb to more than $400 billion in 2006 from $319 billion in 2005, largely because of relief efforts tied to Hurricane Katrina.
That shortfall would be equal to about 3 percent of the nation's gross domestic product, a significantly higher share than last year and high for a country that is expected to experience its fifth straight year of economic growth.
The new deficit forecast is about $60 billion bigger than what the administration had predicted in July, before Hurricane Katrina.
"We believe that those increased outlays associated with Katrina recovery efforts are a temporary event," Mr. Kaplan told reporters, adding that the administration is still hoping for the deficit to resume its "downward trajectory" and meet Mr. Bush's promise for 2009.
Congress has appropriated about $85 billion in spending related to Hurricane Katrina, as well as about $8 billion in tax relief for the Gulf Coast over the next few years.
But Mr. Bush's fiscal challenges are not all the result of hurricanes. Even though administration officials and lawmakers have known for months that the next year's deficit would be higher, Mr. Bush and Republican leaders in Congress are pushing hard to pass nearly $90 billion in tax cuts for the next five years.
"The deficit is going up again, and that complicates some of the administration's agenda," said Robert Bixby, director of the Concord Coalition, a nonpartisan research group that pushes for fiscal discipline. "It makes part of it easier for them to argue for greater spending restraint in nondefense areas, but it will make extensions of the tax cuts more difficult."
Democrats are certain to seize upon the new deficit forecast in attacking Republican efforts to cut spending on social programs for the poor while extending tax cuts that tend to benefit high-income families.
Some Republicans also made it clear they were unhappy, too.
"The expected increase in the deficit is to some degree understandable," said Senator Judd Gregg of New Hampshire, chairman of the Senate Budget Committee. "But it is still unacceptable. As a government, we must continue to try to control the rate of growth of spending."
Since President Bush took office in 2001, the federal budget has swung from a surplus of more than $100 billion to deficits as high as $412 billion in 2004. Last year, the deficit narrowed unexpectedly to $319 billion, mainly because of a surge in corporate tax revenues and taxes on stock-market gains.
Mr. Bush has attributed much if not most of the rising deficit to several unforeseen shocks: a recession in 2001, the collapse of the stock market bubble, huge new spending on domestic security after the terrorist attacks of Sept. 11, 2001, and the cost of wars in Afghanistan and Iraq.
But budget analysts outside the administration have long argued that the government spending has been very high under Mr. Bush while tax cuts have chipped away at revenues.
As a percentage of gross domestic product, a measure that economists prefer over simple dollar amounts, government spending has climbed sharply, from 18.5 percent in 2001 to nearly 20 percent for each of the past three years.
By contrast, tax revenues plunged to as little as 16.3 percent of the nation's economy from 19.8 percent in 2001.
The yawning deficit has provoked strong criticism from conservative Republicans and liberal Democrats alike. But lawmakers remain locked in partisan combat over whether to restore discipline through higher taxes or tighter spending.
In a report last month, the nonpartisan Congressional Budget Office warned that the long-term budget problems could not be solved without basic changes, because soaring health care costs and a growing population of retiring baby-boomers would greatly increase government's overall pace of spending.
"Limiting the growth of outlays for defense, education, transportation and other discretionary programs would not be enough to ensure fiscal sustainability," the budget office said.
"If taxation is restricted to levels that prevailed in the past," it added, "the growth in spending on programs for the elderly will have to be reduced substantially."
