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The Great American Debt Flow

By EconMatters

The public debt of the United States has increased by over $500 billion each year since fiscal year (FY) 2003, and as of September, 2011, the gross debt was about $14.7 trillion, of which closed to $10 trillion was held by the public and about $4.6 trillion was intragovernmental holdings (e.g. Social Security, Medicare, etc. which some believe should not be included as part of the national debt). The gross debt is about 98% of the U.S. GDP in 2011, and debt held by the public at 67% of GDP.

The U.S. is hardly the lone ranger on this great quest of debt accumulation. According to the IMF Fiscal Monitor published in April 2011, general government gross debt-to-GDP ratios are rising substantially in most advanced economies over the period of 2010 to 2015. IMF now projects that ratio would reach 107.3% by 2016 for the advanced economies, vs. 30.1% for the emerging countries. Moreover, deficits in the United States, along with Japan, are expected to increase by at least 3% of GDP between 2007 and 2016.

However, the high debt level and the recent sovereign credit downgrade (albeit controversial) so far has not affected the U.S. borrowing rate benefiting primarily from the Euro Zone sovereign debt crisis. The U.S. bond yields are still at record low levels, which has befuddled PIMCO the Bond King. Treasuries have returned 9.8% this year, according to Bank of America Merrill Lynch Indexes as reported by Bloomberg. Ten-year notes have returned 18%, while 30-year bonds have returned 36%.

This anomaly in the bond market also temporarily blunted the urgency of an in-house debt cleaning. Government is no different from an ordinary household in that when in serious debt trouble, you cut spending while trying to expand revenue stream. But the Federal Reserve said on Sept. 21 that it would buy longer-term debt to lower borrowing costs and downgraded the economic outlook, while some experts see the U.S. is already in a double dip recession.

And as protests and strikes in Europe would attest that austerity measures, high unemployment rate, and diminishing household income tend to form a volatile mix. From that perspective, this infographic is just a scary reminder that America is at a treacherous debt crossroad, and most signs seem to suggest that things could get even more difficult from here on out.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.