By Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) -- My five-month-old daughter is going to have some serious financial troubles when she grows up, mainly because I'm already borrowing money from her.
Many parents like to at least try to transfer some of their own wealth to their kids. But not me, and not the millions of other moms and dads across the country. Unless we do something about our government's massive annual deficits and debt our kids could be paying dearly tomorrow for our spending today.
As debts rise so will interest payments, "and every generation of Americans is going to face a larger burden," said Edmund Mantell, my child's grandfather and a professor of economics and finance at Pace University's Lubin School of Business in New York. "We are borrowing from future generations. Instead of transferring our wealth to them, we are transferring their wealth to us."
The deficit has funded expensive wars and efforts to rescue the economy. As a parent, I'm worried that our spending has been poorly executed, and that incompetency and partisanship in Washington will hurt families stuck in a crippled economy.
Debt can be dangerous, as any credit-card holder whose future has been threatened by growing bills knows. We hope that future generations will be wealthier than us, but we may be standing in the way of economic growth.
"When the economy recovers than all of that negative saving by the federal government may turn into a constraint on investment in the United States, and to the extent it does that it impoverishes the future," said Robert Solow, professor emeritus of economics at Massachusetts Institute of Technology and a Nobel laureate.
Foreign ownership of U.S. debt is also a concern, Solow said.
"There was once a time when nearly all of our Treasury debt was owned by Americans, but in recent decades foreign ownership of American debt has increased," Solow said. "To the extent that we add to the stock of Treasury bonds owned by foreigners that means that in the future part of the income earned in the United States by labor and capital is going to have to be paid abroad."
Due to accumulating deficits, there will be a significant gain in federal debt held by the public in coming years, according to a recent forecast from the Congressional Budget Office.
"With such a large increase in debt, plus an expected increase in interest rates as the economic recovery strengthens, interest payments on the debt are poised to skyrocket," according to CBO.
The president has proposed a $3.8 trillion budget for fiscal 2011 that would incur a $1.3 trillion deficit. The budget projects that debt held by the public as a percent of gross domestic product is expected to hit a whopping 77% in fiscal 2020, up from 53% in 2009.
Read More: http://www.marketwatch.com/story/massiv ... 2010-02-02
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