The next great crisis: America's debt

The next great crisis: America's debt
At this rate, your share of the load will be $155,000 in a decade. How chronic deficits are putting the country on a path to fiscal collapse.

(Fortune Magazine) -- Normally Paul Krugman, the liberal pundit and Nobel laureate in economics, and Paul Ryan, a conservative Republican congressman from Wisconsin, share little in common except their first names and a scorching passion for views they champion from opposite political poles. So when the two combatants agree on a fundamental threat to the U.S. economy, Americans should heed this alarm as the real thing. What's worrying both Krugman and Ryan is the rapid increase in the federal debt - not so much the stimulus-driven rise to mountainous levels in the next few years, but the huge structural deficits that, under all projections, keep building the burden far into the future to unsustainable, ruinous heights. "The long-term outlook remains worrying," warned Krugman in his New York Times column. Krugman strongly supports President Obama's spending plans but bemoans the shortfall in taxes to pay for them.

Ryan flays the administration for piling new spending on top of already enormous deficits. "This isn't a temporary stimulus but a ramp-up in debt followed by a greater explosion in spending and debt," he told Fortune, predicting a day when America's creditors will start viewing the U.S. Treasury as a risky bet. "The bond markets will come after us with a vengeance. We're playing with fire." Krugman favors far higher taxes, while Ryan wants to curb spending, but for now what's so big and so dangerous that it distresses such diverse types as Krugman and Ryan - and should scare all Americans - is the Great Debt Threat.
The bill is far too big for only the rich to pick up. There aren't enough of them. America will have to lean on citizens far below the $250,000 income threshold: nurses, electricians, secretaries, and factory workers. Within a decade the average household that pays income tax will owe the equivalent of $155,000 in federal debt, about $90,000 more than last year. What the Obama administration isn't telling Americans is that the only practical solution is a giant tax increase aimed squarely at the middle class. The alternative, big cuts in spending, aren't part of the President's agenda. To keep the debt from wrecking the economy, the U.S. would need to raise annual federal income taxes an average of $11,000 in 2019 for all families that pay them, an increase of about 55%. "The revenues needed are far too big to raise from high earners," says Alan Auerbach, an economist at the University of California at Berkeley. "The government will have to go where the money is, to the middle class." The most likely levy: a European-style value-added tax (VAT) that would substantially raise the price of everything from autos to restaurant meals.
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http://money.cnn.com/2009/06/05/retirement/next_crisis_americas_debt.fortune/index.htm?postversion=2009060914

Stocks: Is the Rally on Sound Footing?

Stocks: Is the Rally on Sound Footing?
Almost everyone has been surprised by the stock market's month-long run. But keeping the momentum going could be tricky

(Source: Business Week)
Recession? Financial crisis? Never mind. The stock market just finished an extraordinary month, a big surprise for even the most optimistic observers.
Stocks, measured by the broad Standard & Poor's 500-stock index, hit a low for the current bear market on Mar. 9. A month later, by the close on Apr. 9, the S&P 500 was 26.6% higher.
If this March-April advance were a calendar month, it would be the best month for the S&P 500 since 1933.
"The rally has been surprising in its length and how far it's come," says William Rutherford, president of Rutherford Investment Management. Stock gains are boosting confidence, not just among investors but in the U.S. economy as a whole, he says.
"There is a lot of upward momentum here," says Richard Sparks of Schaeffer's Investment Research. "A lot of buyers are stepping in."
Notes of Cautious Optimism
First-quarter earnings season, which began on Apr. 7, threatened to trip up the market rally. After all, amid a global recession and financial crisis, earnings for the S&P 500 are expected to drop 38%, according to Thomson Reuters (TRI).
But an early earnings announcement from Wells Fargo (WFC) sparked a rally, when the bank reported profits that were double expectations.
"Expectations for earnings season are so low that it's going to be hard to disappoint," says James King, president and chief investment officer at National Penn Investors Trust.
The fact that good news arrived from the financial sector was especially significant.
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http://www.businessweek.com/investor/content/apr2009/pi20090410_940389.htm?chan=top+news_top+news+index+-+temp_top+story