US debt is out of control and is likely to overtake US gross domestic product by 2012, according to the latest reports.
The Daily Reckoning quotes Bloomberg reporting that US debt has risen past $13 trillion for the first time and that the amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund.
Connie Maddon in Blogging Stocks warns that this will inevitably mean higher interest rates. Of course, the US at the moment is in a sweet spot. With the turmoil in Europe, investors are buying the greenback as a safe haven (well, what else are they going to buy? The yen?) But assuming Europe will stabilize at some point, investors will then see that the massive debt makes US Treasuries a dangerous place because the interest cost alone on $13 trillion will put an added burden on the government and the people.
Writing last week in The Wall Street Journal, Mark Whitehouse says US debt has reached a key threshold. After that point, annual economic growth tends to be about one percentage point lower. The market seems to have shown it has faith that US will get its spending under control. Investors are deluded. So far, there's no sign of that happening.
The super debt cycle spells a grim future for the world's biggest economy with higher interest rates and sub-optimal growth. Not a good sign for the rest of the world.
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