Sobering Facts About the U.S. Economy

Since the stock market has been demonstrated to be as risky as a casino, I've been trying to find a conservative form of investing that hedges against the prospect of high rates of inflation in the future. Research led me to consider TIPS (Treasury Inflation Protected Securities). Investigating the possibilities for investing in TIPS led me to a report issued last week by the U.S. Government Accountability Office.

That report, Debt Management: Treasury Inflation Protected Securities Shoulg Play a Heightened Role in Addressing Debt Management Challenges, describes the challenge that the U.S. government is facing in regard to the mountain of debt that must be paid for the enormous budget deficits, war expenses and finance industry bailout of the last nine years. Here are some sobering facts the GAO discusses as it offers TIPS as a tool for the government to manage its debt:

"Treasury’s total outstanding debt increased by $2.3 trillion (25 percent increase in federal debt) since the onset of the economic recession in December 2007." (p.4)

"At the end of June 2009, Treasury’s outstanding marketable securities stood at $6.6 trillion, an increase of almost $2.1 trillion from December 2007." (p. 4)

"Treasury data states that almost half of the $6.6 trillion in marketable securities is held by foreign investors, as of May 2009." (footnote, p. 4)

"78 percent (or about $5.1 trillion) of the outstanding marketable Treasuries mature by 2015 and will need to be rolled over (or refinanced) -- potentially at higher interest rates." (p. 6)

"CBO’s analysis of the President’s Budgetary Proposals for Fiscal Year 2010 shows -—absent changes in policy -— interest payments on federal debt more than tripling -—to almost $800 billion -— by 2019." (pp. 6-7)

"CBO projects that, absent changes in current policy, the debt held by the public will double in 5 years (from 2008 to 2013) and almost triple in 11 years (from 2008 to 2019). . . . CBO projects that debt held by the public will increase from 41 percent of gross domestic product (GDP) in fiscal year 2008 to 71 percent by the end of fiscal year 2013." (p. 8)

Here's one of the reasons why the GAO considers TIPS a good debt strategy for the government:

"Governments are well suited to bear inflation risk because periods of inflation are often associated with increased revenues." (p. 2)