One of the big drags on the economy in the coming years will be our fiscal deficits and budget problems.
I’ll be writing this summer about the US ability (and struggles) to sell bonds and finance the debt, particularly as QE2 ends and the Chinese bubble bursts (at some point in the future).
This article talks in depth about an issue we may see more of in the future–US debt being downgraded. This is from a German, not US, rating agency, but it could be just the beginning.
This article is good because it talks about Household and Consumer Debt as the underlying problem with our financial problems, not the banking regulations.
I happen to agree personal consumer debt has been a huge problem for our country and will continue to be a major factor in the next crisis.
What can you do?
Get your personal debt under control and as low as possible. If you need help with strategies around this, please let me know me.
Bonds go up and down in value based on interest rates, credit quality, and simple supply/demand.
The first quarter was a bumpy ride for US Treasuries (as I mention in my video which you should have listened to already), and essentially ended flat to slightly negative.
Much of what will happen in the next quarter will be dependent on the ending of quantitative easing in June and whether the Federal Reserve increases interest rates.
What to do? Stay tuned and be diversified. Too much of an allocation to any category can be negative. Too many Treasuries may lead you to lose purchasing power because you’re not staying up with inflation.
You’ll see me in the coming months talk about the bond markets, particularly as the Quantitative Easing (QE2) comes to a close this summer.
We have a huge federal deficit. We need people to buy Federal bonds to lend money to the government.
With the huge influx of money from the Fed in the past few months, foreign investors were squeezed out. Will they come back? The answer is not as simple as you’d think.
I’ll be writing more and more about this as the year goes by, particularly it’s impact on you.
Japan has been in a continued recession for the past 20 years.
The deficit levels of the Japan government are among the highest of the developed countries, and expected to increase in the coming years.
This is not good news for Japan. As the rating decreases, the extra premium paid to borrow money goes up. So, a 3% cost of borrow might increase to 4%.
Anyway, this is something to watch as the United States deficit to GDP is increasing rapidly.