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Entries in U.S. Debt (3)

Monday
Aug082011

Dow Falls More than 600 Points in Worst Day Since 2008

ABC News(NEW YORK) -- The Dow Jones Industrial Average fell over 600 points Monday after a one-two punch: the first-ever Standard & Poor's downgrade of U.S. debt, then the downgrading of government-backed mortgage debt. The Dow's one-day drop of more than 600 points was its biggest point loss in a single day since December 1, 2008.

In closing figures, the Dow Jones Industrial Average sank 634.76 points at 10,809.

The Standard & Poor's 500 stock index tumbled 78 points, or 6.5 percent, to 1123, with financial and energy stocks falling hardest.

Monday's nose-dive came on the heels of President Obama's proclamation that the United States knew well before the S&P downgrade that it had a debt problem.

"The U.S. will always be a triple-A country despite what rating agencies say," he said.

The good news, he said, is the debt is a "solvable" problem that can be addressed through tax reform and spending cuts.

Investors don't seem to agree. The Dow plunged another 100 points to hover around 500 after the president's speech.

As stocks reeled, gold surged by $68 to a record $1,720 an ounce.

Investors were hoping for some sign that the steep market selloff of the last three weeks would abate. Those hopes were dashed when S&P announced the downgrade of the mortgage debt agencies, which are now owned by the U.S. government following their takeover in the 2007 financial crisis. Lower ratings on U.S. bonds and mortgage debt could mean higher interest rates, creating still more drag on the faltering U.S. economy.

Though government officials sought to find fault with S&P's assessment, pointing out that the agency had made a $2 trillion error in its math, others say rampant government spending led to the downgrade.

"If we were running our affairs properly we wouldn't have to worry about S&P, Moody's and Fitch...," Paul O'Neill, treasury secretary in the Bush administration, told ABC News.

Since the late Friday announcement of S&P's downgrade of the U.S. credit rating, there were efforts across the world to calm markets. All weekend the White House has been fighting in some very strong language, calling the move "amateurish" and "breathtaking."

A managing director at Standard & Poor's told George Stephanopoulos on Good Morning America Monday that he has no second thoughts about the decision to cut the U.S. debt rating.

With global stocks sinking early Monday, S&P's David Beers said the agency's decision was based on factors including damage done to the U.S. reputation over the controversy surrounding the debt ceiling and concerns that underlying public finances are on an unsustainable path.

Asked if he had any second thoughts about the downgrade, Beers replied, "Absolutely not."

Copyright 2011 ABC News Radio

Thursday
Aug042011

Six Ways to Profit from the US Debt Crisis

Medioimages/Photodisc(NEW YORK) -- The same crisis that gave grey hair to Congressmen is creating new profit opportunities for investors, say financial strategists.

Thanks to continuing U.S. debt woes, now may be the best time to get a fixed-rate, 30-year mortgage; or the best time to invest in the stocks of U.S. companies that export. It's a good time to bet against U.S. treasuries and to put money into currencies that are likely to outperform the dollar.

On Wednesday, the dollar fell on worries that credit rating agencies may yet downgrade U.S. debt, despite the debt-reduction bill passed by Congress and agreed to by the White House earlier this week. Two reports issued Wednesday—one on U.S. factory orders, the other on the U.S. service sector—gave more bad news, suggesting that already-anemic U.S. economic growth is slowing.

Yet this bleak economic news is creating investment opportunities in several categories:

Home Mortgages. The fact that the yield on 10-year U.S. Treasury notes has plunged is good news for anyone looking for an affordable a home loan, since mortgage rates and 10-year treasuries typically move in tandem.

U.S. Treasuries. Worried that treasuries will decline further? You can invest in a mutual fund that goes up when treasuries go down. These allow investors, in effect, to bet against U.S. debt.

Foreign Currencies. If the U.S. dollar continues to decline, Tom Lydon, editor and publisher of ETF Trends, suggests investors consider a fund pessimistic about U.S. currency. Example: The PowerShares DB US Dollar Bearish Fund, which rewards investors when the dollar weakens in relation to the Japanese yen, the British pound, the Canadian dollar, Swiss franc and Swedish krona. Alternatively, investors can simply buy those currencies directly.

Axel Merk, manager of the Merk Funds, which include the Merk Hard Currency Fund, thinks it makes more sense for an investor to buy a basket of currencies rather than the currency of any one country (Singapore, for example, whose strong economy and positive trade balance have made its dollar a star performer).

"Having a basket," he says, "mitigates the risk. We like the countries whose central banks are printing less money than the U.S. and whose governments are spending less." Merk's basket includes some of the currencies named above, plus the New Zealand dollar and the Australian dollar, as well as gold.

Copyright 2011 ABC News Radio

Monday
Jan312011

What Could You Do with the US Debt of $14 Trillion?

Photo Courtesy - Getty Images(NEW YORK) -- While the debate over whether to lift the federal government's $14.3-trillion debt limit roils in the nation's capital, the country's total public debt grows daily.

That much cash is hard to imagine, even if you're Donald Trump. So with the help of usdebtclock.org, let's first look at what that kind of money can buy, then we'll put the size of the debt in perspective.

1. 3,824,812,630 Super Bowl XLV tickets

If the average price of a ticket to this year's Super Bowl at the Cowboys Stadium in Dallas is $3,676, according to Forbes, then the country's debt could buy out 3.8 billion Super Bowl tickets. That could cover attendance for the next 53,122 annual games, if average attendance at a Super Bowl game is 72,000 people. Or we could just invite half the entire population of world, including China and India.

2. $45,068.58 per person in the U.S.

The U.S. debt comes to over $45,000 per man, woman and child, given the current U.S. population of 311,969,269.

3. Almost the entire annual output of the U.S.

The U.S. GDP is $14,870.4 billion using current dollars, according to the Commerce Department on Friday. That means the debt is about 95 percent of GDP, the value of all economic activity here.

4. The U.S. defense budget for the next 20 years

The defense budget is $690.8 billion, which means the country's debt could cover this largest budget item for the next 20 years.

5. 58 million homes

Stephen Bronars, senior economist with Welch Consulting, said that at the median home price of $242,000, the deficit could buy over 58 million homes. That would surely boost the sagging housing market.

6. 400 of the country's largest companies

You could buy the country's 400 largest companies, according to their market capitalization, said Bronars. Or you could buy 35 of the equivalent of Exxon Mobil, the largest company in the country, with a market value of $399.52 billion. Or $14 trillion is the equivalent of 35 of Apple Inc., which has a market cap of $310.79 billion.

7. All the taxes collected, state and federal

With current annual U.S. tax collection of $2.16 trilliion and $1.17 trillion for the combined states, it would take more than four years to pay off the debt if every penny went toward that purpose.

How Bad Is the Debt?

Tom Digaloma, head of fixed income trading at Guggenheim Partners, said $14 trillion may sound astronomical, but it is not as worrisome as the deficits of other countries, such as Japan. Standard and Poor's just recently downgraded Japan's sovereign debt rating to AA- from AA, its first downgrade since 2002. By some measures, Japan's public debt is more than twice the size of its GDP, according to Debtclock.org.

Though Moody's Investor Service and the IMF warned the U.S. about its debt levels, Digaloma said it will not be long before the U.S. increases its GDP and boosts employment levels, easing the debt ratio.

Copyright 2011 ABC News Radio







ABC News Radio