New Concerns about Mounting US Debt

Posted on September 28, 2011 by Bill Faiferlick

From Peter G. Peterson Foundation

This article confirms what I have been writing about and discussing with clients for years and the impending fiscal issues the US will be faced with.

In what some analysts said was the latest cause for anxiety, the U.S. Treasury faced weak demand in its bid to sell $39 billion in five-year debt securities on Wednesday. A sale of Treasuries the day before encountered a similar lack of enthusiasm, raising the specter of higher interest rates as the U.S. issues increasing amounts of debt to finance the budget deficits resulting from federal stimulus programs and declining tax revenues.

Separately, China and other nations that have been financing U.S. debt since it began exploding earlier this decade have been questioning whether the U.S. has the fortitude to rein in its deficits in coming years. At high-level meetings with Chinese officials in Washington, Treasury Secretary Timothy F. Geithner had to assure the Chinese on Tuesday that once a “durable recovery” is under way, “we will bring our fiscal position down to a more sustainable level over time.”

Weakening demand for U.S. Treasuries had a silver lining, in the view of some analysts, however. That is because as economic recovery gets under way, investors may be looking for investments other than low-risk U.S. government debt. The so-called “flight to safety” by investors has kept U.S. interest rates low throughout the global financial crisis. Once the crisis recedes, many experts say, investors will inevitably have somewhat less appetite for U.S. debt.