U.S. facing debt ‘super cycle’: $13trillion black hole to overtake country’s GDP ‘within two years’
By Mail Foreign Service
7th June 2010
America’s $13trillion debt is set to overtake the country’s GDP within the next two years as economists warn of a ‘debt super cycle.’
Forecasters predict the U.S. debt will grow to surpass gross domestic product in 2012, based on data from the International Monetary Fund.
According to Bloomberg, the world’s largest economy will expand at a slower pace than the 3.2 per cent average of the past five decades.
It comes as Barack Obama borrows record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.
‘Over the long term, interest rates on government debt will likely have to rise to attract investors,’ said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc.
‘That will be a big burden on the government and the people.’
The forecast prompted warnings the country will be plunged into a debt ‘super cycle’ – which occurs when a debt exceeds the value of a nation’s annual economic output.
Economist Bill Gross, who runs the world’s largest mutual fund in California, said last month that U.S. economic growth wouldn’t be enough to support the debt ‘if real interest rates were ever to go up instead of down.’
The grim forecast follows Friday’s disappointing U.S. job figures, which sent the Dow Jones down by 3 per cent.
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The figures showed only 41,000 of the 431,000 non-farm jobs created in May were in the private sector.
Today’s warning comes as economists predict the break up of the euro within five years.
The dire state of the public finances of Greece and other eurozone members such as Portugal, Spain, Italy and Ireland have driven the single currency to a four-year low against the dollar and cast doubts over its future.
The currency started the week by dropping to another new low against the dollar – falling below $1.19 for the first time since March 2006.
In London, the FTSE 100 Index was down more than 1.6 per cent in early trade because of fears Europe’s debt problems could spread.