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  • The Global Government Debt Bubble: Local Government Edition

    We’ve warned before that the federal government’s exploding appetite for debt was helping to create a Global Government Debt Bubble. The Obama Administration has even been trying to worsen the problem by lobbying other countries to borrow even more money, despite the fact that our own record borrowing makes their borrowing more expensive.

    But national governments are not the only entities that issue debt. Nicole Gelinas writes in today’s Wall Street Journal:

    [State and local governments] should use the remaining $229 billion they’re getting in stimulus money to put their fiscal houses in order. If they don’t, they risk burdening their constituents with devastating taxes in the near future.

    Local and state governments face such peril in part because the federal government is about to saturate the market for U.S.-based debt — including debt issued by municipalities — as it props up failed financial institutions and distributes stimulus money. The federal government could overwhelm the credit markets. In the third quarter of 2008 alone, the amount of federal-government debt surged by 39%. This was “the largest quarterly growth rate recorded,” the Federal Reserve recently reported.

    It likely will get worse. Treasury debt held by investors around the world is slated to surge by 98% between now and 2013. That’s overwhelming even in a growing market.

    It’s easy to see how such issuance could engulf demand for other types of private and public borrowing here and around the world. Even if the appetite for total credit-market debt were to increase as dramatically as it did over the past five years — highly unlikely — the federal government would be on pace to soak up 22% of that new demand. (The federal government’s share before 2008 was just 10%.) In a stagnant or shrinking credit market, private and municipal borrowers would have to fight very hard with Uncle Sam to get attention.

    Posted in Ongoing Priorities [slideshow_deploy]

    3 Responses to The Global Government Debt Bubble: Local Government Edition

    1. Matthew Mullian - De says:

      What will happen when Obama, Geithner and the rest of the wiz-kids realize they can't easily borrow this much money? They'll have to fall back on printing what they need. Then the economy will add significant inflation to it's list of problems. Talk about a death blow to the middle class!

      Jimmy Carter deserves credit for starting the Reagan Revolution. Obama is starting the next conservative revolt, but it will be a painful one.

    2. Pingback: Debt Bubble Going Local? « Justbkuz

    3. Spiritof76, New Hamp says:

      Get ready for a financial death blow. It will wipe us out of our savings, 401K and retirement. Forget about SS, Medicare and Medicaid. US will be where GM is today with no where to turn to. Dollar will lose its reserve currency. US standard of living will drop precipitously. US will print money to get out of debt but Weimar Republic scenario may play out again, but this time in the US.

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