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June 7, 2010

The Global Debt Crisis Explained, sort of

I had not heard of Clarke and Dawe before, but I love the way they “explain” the impossibly tangled web of debt that may bring down one economy after another.

Various countries in Europe are the first to falter, but the US appears to be heading for the precipice as well.  Bloomberg, June 4:

U.S.’s $13 Trillion Debt Poised to Overtake GDP

President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”

The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.

“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”

Click on the “Graphic” tab at the above link to view the chart.

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