Last month Heritage fellow J.D. foster wrote:
The global recession has caused deficits to balloon almost everywhere, and governments worldwide are considering their own massive programs to stimulate their economies. So the United States will be offering this great wave of federal debt to the credit markets while most other countries will be doing the same. Because interest rates are set on global markets, this even larger global wave of government debt is likely to have much greater interest rate effects than would be the case if the United States were acting alone.
A Telegraph headline today warns “With the US deficit soaring, Treasuries aren’t a great safe-haven investment.” The article goes on to report:
Based on the cost of fiscal stimulus and the recently announced bank bail-out, the US federal government’s debt to GDP ratio is heading much higher.
By 2011, it may even equal Hungary’s current ratio, which skyrocketed due to profligate spending and remnants of centrally planned waste.
This suggests the credit quality of currently top-rated US Treasury debt may trend down more toward the quality of Hungary’s government debt, which is nearer the bottom of the investment-grade pecking order. That’s not a complete disaster. But it means treasury bonds won’t really be a safe-haven investment either.
“No European government has done anything as bone-headed as we have,” said Hungarian Prime Minister Ferenc Gyurcsany of his country’s fiscal policy in May 2006. By 2012, US policymakers may be echoing him.