Originally published June 22 2011
IMF warns U.S. headed toward financial crisis if debt is not urgently reduced
by J. D. Heyes
(NaturalNews) In what should be another klaxon bell warning in the night for lawmakers and the Obama administration, the International Monetary Fund last week warned once again that unless U.S. debt is brought under control, the nation's financial ship of state is headed for an iceburg, and when it sinks, the entire global economy won't be far behind.
In a new assessment of American and European debt balance sheets, the IMF said both were "playing with fire" if they failed to get the fiscal houses in order.
It seems that not only is government spending out of control, the U.S. economy isn't growing very quickly either. Both are combining to put the squeeze on American financial health in a way that will eventually lead to an economic collapse of epic proportions.
The IMF predicts that U.S. gross domestic product - the measure of the entire economic output of the country - will grow at a lukewarm 2.5 percent this year, and just 2.7 percent next year.
Just to put that into perspective, GDP growth was a pathetic 1.8 percent in the first quarter of 2011, down from 3.1 percent in the fourth quarter of last year and 2.6 percent in all of 2010.
Meanwhile, unemployment was at or near 10 percent during most of 2010; it remains 9.1 percent today. When factories, businesses and firms don't grow, they don't hire. When both of these factors combine, the result is less tax revenue for the government, but that hasn't seemed to matter, judging by the spending spree lawmakers have been on for years - hence our nation's $14.2 trillion-plus deficit, which is growing by the second.
All of this has combined to threaten the very fiscal health of our nation, in a way that won't be easily regained and, if the bottom falls out, will be catastrophic on the world's economy as well.
What's more, there appears to be no sign in Washington that both sides of the political aisle are willing to come together to get spending in check, as well as doing what it takes to get the nation working again - a situation in which the IMF is well aware.
"You cannot afford to have a world economy where these important decisions are postponed, because you're really playing with fire," Jose Vinals, director of the IMF's monetary and capital markets department, said. "We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis."
Even a technical default on the nation's debt payments would jeopardize the country's AAA rating, say ratings agencies.
It all amounts to this: Without a serious effort to solve the nation's spending-to-debt ratio and get ourselves back on a path of fiscal sanity, there will come a time when it won't matter anymore, because the entire system will collapse. The IMF, the world's credit rating agencies, and most economists see the train coming. But what they also see is that no one who can fix the problem seems interested in getting off the track.
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