BOSTON (TheStreet) -- Consumer credit caused the recession. And government debt threatens the rebound.
As the stock-market rally approaches its ninth month, investors must take into account the burdensome effect of debt, the factor most likely to sink the economy. That's why Google(GOOG Quote) and Microsoft(MSFT Quote) may be better choices than General Electric(GE Quote) and IBM(IBM Quote). And gold and tax-exempt securities may prove to be the ultimate havens. The U.S. has been in this situation before. As the following graph shows, debt dwarfed gross domestic product in fiscal 1945. The peak wouldn't be reached again until 1984, when America first began its sharp climb to the current heady debt level that tops $12 trillion and is projected to soar to more than $18 trillion in five years. Those gigantic numbers are scary for several reasons. The first is the threat of rampant inflation. To pay for the assorted bailouts and stimulus packages, the government needed to issue debt, but the Federal Reserve felt pressured to keep interest rates low and leave money in the system to ensure there are affordable loans for businesses and consumers. To accomplish that, the Fed purchased securities from banks in the open market. As a result, the government forced down interest rates in the short term and increases inflation in the long term as newly created money sloshes around in the system. Loading Comments... < Previous 1 2 3 4 5 Next >SHARE:
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Dow Jones S&P 500 NASDAQ 10-Year Note 10,431.37 1,103.84 2,170.40 33.66 Oil * 77.23 UP 113.21 UP 12.46 UP 24.36 UP 0.10 10 Yr 3.37% SPDR Gold 114.09 +1.10% +1.14% +1.14% +0.30% Data delayed 20 minutes More From TheStreet Latest Headlines Top-rated Mutual Funds from TheStreet Ratings Jim Cramer Book Tour Top-rated ETFs from TheStreet Ratings Find returns with the Dividend Calendar Top Rated Stocks from TheStreet Ratings Twitter RSS Facebook YouTube adsonar_placementId=1341369;adsonar_pid=879768;adsonar_ps=-1;adsonar_zw=320;adsonar_zh=280;adsonar_jv='ads.adsonar.com'; Brokerage Partners YAHOO.util.Event.on(window,"load",function(){ setTimeout(function(){ TSCM.util.attachScript('scr_intellitxt','http://thestreet.us.intellitxt.com/intellitxt/front.asp?ipid=10685'); },1200); }); Sponsored Links Get your credit score in 2 easy steps for free. 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