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By Mark T. Williams
Published: September 8 2010 15:18 | Last updated: September 8 2010 15:18
A growing chorus of doomsayers claims the US government is bankrupt, pointing to escalating national debt, falling gross domestic product and a possible double-dip recession as proof. Some argue that America is worse off than Greece. Such hyperbole garners media attention but ignores what the market is telling us. (The US, let us remember, remains the world's largest economy with annual GDP of $14,600bn.)
It is true that the US accumulated deficit has doubled in the past decade to a mind-numbing $13,000bn, with more red ink to follow. The budget deficit for 2011 is forecast at $1,300bn, slightly more than 2010 but down from $1,700bn in 2009. The US second-quarter GDP growth estimate was lowered to 1.6 per cent from 2.4 per cent. In a down economy, deficit spending can fuel a turnaround. Longer-term, markets penalise governments that take on too much debt by imposing higher interest rates. Funding becomes more expensive as rates increase, forcing cuts to meet budget shortfalls. This market discipline helps keep governments in check.
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