Debt worries

Debt worries

The New Year kicked off with some good news from the US: the danger of a fiscal meltdown is over - for the time being. At the end of 2012, the public was worried that the government would cut public spending by US$600 billion and increase taxes. Those measures might have pushed the US economy into recession.

But after a Congress vote against steep income tax increases and spending cuts, the stock market rallied this month. It seems that indicators are pointing to a brighter year ahead: there are gains in US employment, housing and consumer confidence. The central bank has promised to keep interest rates low.

But plenty of risks remain and 2013 promises to be a year of uncertainty. US debt has ballooned to more than US$16 trillion, exceeding the country's annual GDP.

The debt is largely the result of persistent federal budget deficits, tax cuts, economic stimulus packages and extravagant military spending. To avoid a default on US debts, Congress has repeatedly raised the debt ceiling. That is a short-term fix, not a solution, to the problems.

America's credibility has been taking hits with investors and credit-rating companies. Even as the country borrows more money, mainly from China, the fears are that it won't be able to pay back its mounting debts. We are in for a precarious 2013. We should hope for the best and prepare for the worst.



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