Worries rise on the size of U.S. debt

By Graham Bowley 

and Jack Healy 

New York Times

Posted: 05/03/2009 07:04:48 PM PDT

Updated: 05/03/2009 10:33:20 PM PDT

As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in new borrowing for the government.

Last week, the yield on 10-year Treasury notes rose to its highest level since November, briefly touching 3.17 percent, a sign that investors are demanding larger returns on the masses of U.S. debt being issued to finance an economic recovery.

While that's still low by historical standards — it averaged about 5.7 percent in the late 1990s, as deficits turned to surpluses under President Bill Clinton — investors are starting to wonder whether the United States is headed for a new era of rising interest rates as the government borrows, borrows and borrows some more.

Already, in the first six months of this fiscal year, the federal deficit is running at $956.8 billion, or nearly one-seventh of gross domestic product — levels not seen since World War II, according to Wrightson ICAP, a research company. Debt held by the public is projected by the Congressional Budget Office to rise from 41 percent of gross domestic product in 2008 to 51 percent in 2009 and to a peak of around 54 percent in 2011 before declining again in the following years. For all of 2009, the administration probably needs to borrow about $2 trillion.

The rising tab has prompted warnings from the Treasury that the congressionally mandated debt ceiling of $12.1 trillion will probably be breached some time in the second half of this year.

Source: http://www.mercurynews.com/business/ci_12286023?source=email

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