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22 Mar 2013
Rising US deficit hampering growth? Results say otherwise
FXstreet.com (Barcelona) - Representative Paul Ryan, chairman of the House Budget Committee, recently declared this month that the U.S. national debt “is hurting our economy today.” Indeed, this is not a very isolated stance, as almost every Republican and even some Democrats embrace it.
However, Economic data – on jobs, housing and investment – simply don’t support that claim. Economists across the political spectrum dispute the best-known study of the subject, by Carmen Reinhart and Kenneth Rogoff, which found that nations with debt loads greater than 90% of their economies grow more slowly. That being said, three years after a government spending surge in response to the recession, which drove the U.S. past that red line – the United States’ USD $16.7 trillion total debt is now 106% of the $15.8 trillion economy – key indicators reflect gathering strength. Businesses have increased spending by 27% since the end of 2009. Moreover, the annual rate of new home construction jumped about 60% and employers have created almost 6 million jobs.
With borrowing costs near record lows, the cost of paying off the debt is lower now than in the year Ronald Reagan left the White House, as a percentage of the economy.
“The argument that heavy debt loads slow economic growth doesn’t hold a lot of water,” says Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia who oversees $12 billion. “It suffers from a mix-up of cause and effect: When weak economic conditions arise, it tends to encourage deficit spending, which is what has led to more U.S. debt being issued, and not the other way around.”
However, Economic data – on jobs, housing and investment – simply don’t support that claim. Economists across the political spectrum dispute the best-known study of the subject, by Carmen Reinhart and Kenneth Rogoff, which found that nations with debt loads greater than 90% of their economies grow more slowly. That being said, three years after a government spending surge in response to the recession, which drove the U.S. past that red line – the United States’ USD $16.7 trillion total debt is now 106% of the $15.8 trillion economy – key indicators reflect gathering strength. Businesses have increased spending by 27% since the end of 2009. Moreover, the annual rate of new home construction jumped about 60% and employers have created almost 6 million jobs.
With borrowing costs near record lows, the cost of paying off the debt is lower now than in the year Ronald Reagan left the White House, as a percentage of the economy.
“The argument that heavy debt loads slow economic growth doesn’t hold a lot of water,” says Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia who oversees $12 billion. “It suffers from a mix-up of cause and effect: When weak economic conditions arise, it tends to encourage deficit spending, which is what has led to more U.S. debt being issued, and not the other way around.”