A Dose of Economic Relality

Another dose of reality, Morgan Stanley last week dropped a “bomb” on some by indicating that investors in U.S. Government bonds will face inevitable defaults due to an aging population and increased difficulty in securing tax revenues in their latest research paper.  While our government debt to GDP in only 53%, our debt to government revenues is 358%, one of the highest levels in the world.  For Morgan Stanley, the question is only which debts do they default on and which do they not, adding that the sovereign debts crisis is global and not over yet.  With defaults inevitable and the U.S. likely on that list, the risk remains that growing concerns over our ability to service debt will begin to force yields up as they have in Europe, adding more pressure to an already fragile economy and forcing a reduction in debt financing that will force us to balance our deficit at a minimum which is currently at 9% this year (government tax revenue below its spending) at over $1.3 Trillion.  The government is just an extension of our wallets at the end of the day, and if they run up a bill that can’t be refinanced and otherwise “comes due” in the next few years, the economy and the consumer will be the one coming up with those funds and one can imagine what that will do the economy…”inevitable defaults.”