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What Would Winston Churchill Say About America's Debt?

12:01 AM, Mar 12, 2011 • By IRWIN M. STELZER
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Let’s hope Churchill was right that Americans do the right thing after exhausting all other possibilities, because we have just about exhausted our ability to borrow on reasonable terms. Pimco, the world’s largest bond fund ($237 billion), believes that is the case. It has sold all of its US Treasury securities in anticipation of a fall in bond prices when the Fed puts QE2 into dry dock and ends its $100 billion monthly bond purchase program in June (bond prices move inversely from interest rates).

The better news on the debt front is that America’s families have cut their debt burden to the lowest level in seven years. Never mind that a bit more than half of the $208.8 billion drop in household debt came as a result of defaults on credit card and mortgage debt. Debt is down, net worth is up, and household balance sheets are stronger. Which, along with recent better news on the job front, might explain why retail sales in February rose by 1%, the eighth consecutive monthly increase, and were 8.9% above year-earlier levels.

Unless, of course, gasoline prices continue to rise, the equivalent of a huge tax, and sop up consumer spending power. Unless, of course, trouble in the eurozone infects the markets for all sovereign debt, putting upward pressure on interest rates. Unless, of course, the Keynesians are right, and austerity programs in the eurozone, Britain, and in America’s states and cities abort the recovery. Unless, of course, the compromise being mooted by The Gang of Six fails to gain traction, and -- to borrow from singer Tennessee Ernie Ford -- we grow another day older and deeper in debt -- $4-$5 billion every day.

Best to ignore the unlesses and hope Churchill was right.

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