2009 Deficit Could Mean Disaster

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Mike Larson discusses the projected deficit figure for 2009 and the implications of that figure. In this issue of Money and Markets, Mr. Larson takes a closer look at how America's finances are reaching disaster.

Mike Larson discusses the projected deficit figure for 2009 and the implications of that figure. Mr. Larson takes a closer look at how America's finances are reaching disaster.

The projected 2009 deficit figure, according to the latest report from the Congressional Budget Office (CBO), is $1.186 trillion. This is equal to about 8.3% of U.S. GDP and surpasses the post-World War II record of 6% set in 1983. The CBO estimate doesn't even include any potential stimulus package from Congress or the Obama administration. The final details of the stimulus plan have not been decided yet. However, it could cost anywhere from $675 billion to $1 trillion.

According to Mike Larson, there are two possibilities that could bail the U.S. out of this debt:
1. Congress and the incoming administration could clamp down on spending going forward to stem the tide of red ink, or
2. The stimulus plan could manage to completely offset all the credit, real estate, and economic problems, thereby leading to a windfall in tax receipts.

Both are highly unlikely and, if neither scenario comes about, America's finances are going to be considerably disastrous for years and years to come.

The government is selling record amounts of debt at auction. Just recently, the Treasury sold $8 billion in 10-year TIPS and $24 billion in four-week bills on January 6, $30 billion in 3-year notes and $35 billion in 70-day cash management bills on January 7, and $16 billion of nominal 10-year notes on January 8. And there's no end in sight. Total net issuance could approach a mind-boggling $2 trillion by year's end.

Thirty-year Treasuries plunged more than 3 points on New Year's Eve, another 2-30/32 on January 2, 5-16/32 on January 5, and another 1-28/32 on January 7. They've lost almost 13 points in a virtual straight line, while yields on 10-year notes shot up from 2.25% to 2.5%.

"My advice remains the same: Short-term Treasuries are fine as a place to park your keep safe money. But stay the heck away from long-term U.S. debt," Larson warns.

To read this issue online, please visit:

About Mike Larson and Money and Markets:
Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.

Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com, where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.

Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.

Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC. Mr. Larson holds B.A. and B.S. degrees from Boston University.

Money and Markets (http://www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit http://www.moneyandmarkets.com.


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