This is an excerpt from the financial post in canada
By Daniel at 23 December, 2009, 1:45 pm
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http://www.financialpost.com/story.html?id=2371606#ixzz0aX91toSQ
The U.S. deficit this year, estimated at US$1.4-trillion, will be at its highest level as measured as a percentage of GDP since the Second World War. Furthermore, the debt-to-GDP ratio in the United States is expected to surpass the 100% threshold in 2012. (In contrast, debt-to-GDP in Canada is expected to peak next year, at 79%.)
To address this, U.S. legislators must opt to either control spending growth or raise taxes - both of which could crimp U.S. demand, which is a key component of Canadian economic growth. Unless addressed, there is also the risk that long-term borrowing costs will surge upward, throwing the North American economy into another tailspin.
“This is a concern,” the Finance Minister said. “We want the U.S. economy to return to health [because] it is good for our economy. We need to see that once American governments, including U.S. states, are through the crisis that there be indications as to how they will manage this huge deficit – because it has consequences both within and [outside of] the United States.”
Mr. Flaherty added he has spoken with his U.S. counterpart, Treasury Secretary Timothy Geithner, and is of the opinion the White House will try to address its budget shortfall.
Mr. Flaherty isn’t the only person warning of Washington’s need to restore fiscal order. Last week, former U.S. Federal Reserve chairman, Alan Greenspan, said the country was on the path toward a “formidable” fiscal crisis unless tackled shortly.
Furthermore, a recent paper prepared for the U.S. National Bureau of Economic Research suggested Washington might try to deal with its monster debt by allowing inflation to rise, thereby eroding the real value of the debt held by creditors - of which China is at the top of the list. Inflating away debt was a tactic tried following the Vietnam War, but kicked off a nasty inflationary spiral that saw inflation surge in the United States from 1.4% in the early 1960s to 13% by the time the 1980s rolled around.
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