Monday, November 23, 2009

Payback Time

Anybody with an RRSP, or anyone who owns property, plans to own property, or uses government services of any kind should read this short article very, very carefully. Anyone tempted to blow the warning off -- "It's the US, stupid, not Canada, I read about it last week in The Economist!" -- should note that many European and Asian economies are in exactly the same boat.

"Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan." (my italics)

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