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June 4 (Bloomberg) -- President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”
The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.
“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”
“Governments need to cut spending and raise money and if they do not do so credibly will be killed by the bond market demanding higher rates,” he said…
“If the nightmare scenario plays out as I suspect it may then the debt situation gets worse. There is currently no exit strategy and the reaction to the crisis of policy makers remains a big worry.”
As a result, Fry is telling investors to play it safe and buy physical assets like land.
“I don’t want to scare anyone but I am considering investing in barbed wire and guns, things are not looking good and rates are heading higher,” he said.