Forecast for US National Debt

The forecast for US National Debt is grim. Already over 65% of GDP, it is likely to rise to over 70% by the end of 2009. National debt is also likely to keep increasing over 2010-2012 as the government struggle to deal with 3 substantial problems.

Why US Debt is Increasing

Demographic Changes. The US population is ageing. An ageing population pay less income tax but receive more benefits and need more health care
Demand for Health Care. The cost of health care has been increasing faster than the rate of growth. This is because there are more medicines on the market and also higher expectations.
Tax Cuts. Bush cut taxes, especially for the rich. It is very difficult for a candidate to promise to change these tax cuts.
Financial Bailouts. The financial bailouts are increasing the liabilities of the government. Some are not even on the balance sheet e.g. Freddie Mac and Fannie Mae. The $700bn package may still not be enough to deal with the legacy of toxic mortgage loans still flooding the financial system.
Recession will only make things worse. Despite a large fiscal expansion programme, the US now appears to be heading towards an official recession, with rising unemployment. This will place a greater cyclical strain on the budget and will exacerbate the structural changes

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