The Foreclosure Crisis Could Well Turn into a Debt Time Bomb for USA in 2009

Posted on January 6, 2009
Filed Under Foreclosure Homes | Leave a Comment

From all indications and current trends it seems that the foreclosure crisis could well turn out to be debt related time bomb for USA in the 2009.

President-elect Barack Obama and the Democrats in the Congress are talking about a huge spending package. The aim is to pull out the nation from this long recession. This will cause the national debt to increase by nearly $2 trillion in 2009 – a record-breaking figure. It will test the appetite of the international community to fund the spending of the American government.

The recent tendency is to pour money frenetically into the relatively safe USA treasury bonds. The interest rates have fallen to an all time low. It seems that some short-term investors are actually giving their money away for free to the government.

Approximately 40% of the debts being held by private investors will mature within a year or may be less than that time. When this happens the treasury will have to recourse to borrowing to honour these. This will be done together with the launching of the most forceful expansion of debt in the history of modern America.

The government is planning to convert its short-term loans into long-term securities that will be more stable but the investors will then be asking for better returns. This will put pressure on the taxpayers for many forthcoming years.

The largest creditors of USA are foreign investors. They may lose confidence in the USA government to repay the debts.

Currently treasury bills are in great demand but it is doubtful if the demand for debt will hold its level of sustainability commented Lou Crandall the chief economist of Wrightson ICAP. Crandall observed, “There’s a time bomb in there somewhere, but we don’t know exactly where on the calendar it is planted.”

The insatiable hunger of the government for cash began when the nation fell into recession in the wake of the foreclosure crisis about a year ago. Washington has since then doled out $168 billion and later $700 billion to prevent the total collapse of the country’s financial system. Motley financial giants like Fannie Mae, Freddie Mac and others were given massive help to keep them on the tracks. But despite these various measures the dark foreclosure clouds hovering over the nation have not cleared. Pundits apprehend worse days ahead with commercial foreclosures beginning to strike.

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