A monthly scorecard on the state of the economy in North America and beyond
America’s debt, now at $16.4 trillion, is growing by about $1 trillion a year. Nearing its legal debt limit, the world’s most powerful nation is, incredibly, weeks away from defaulting for the second time in as many years. It should be obvious by now that it needs to take some drastic measures, no matter how painful, to tackle its debt problem.
But so far the U.S. has only buried its head in the sand. One solution that emerged last week to dodge the debt ceiling was to mint a trillion-dollar coin, which, when deposited in the Treasury, would allow America to pay its bills. First floated as a joke, it was being seriously discussed by economists and lawmakers as a kind of accounting trick to instantly boost the money supply without any punishing side effects. Debt-ceiling crisis averted, the government could simply sell more bonds, and melt down the coin. Another quick-fix proposal: for Washington to issue scrip, or IOUs, to pay its bills.
Proponents say these solutions are no more ridiculous than the artificially imposed debt ceiling and the political gamesmanship that has taken the U.S. budget hostage. That may be true, but in the absence of any other meaningful solutions—like spending cuts and tax increases—some of America’s biggest foreign lenders appear to be losing patience and faith. The foreign purchase of treasuries as a percentage of those issued has been in decline since 2008. China’s top credit rating agency, Dagong, put the U.S. on its “negative watch list” in December. The U.S. already lost its AAA rating in 2011.
President Barack Obama said this week that the idea the U.S. would default is absurd —it is “not a deadbeat nation,” he argued. But it does seems headed in that general direction.
The good news
The bad news
Changing plans
By the numbers
25 per cent: The annual return posted last year by Citadel, one of the world’s top hedge fund firms. The industry average return: closer to six per cent.
5,400: The number of jobs American Express plans to cut due to its travel business being hurt by Internet rivals.
$706 million: The value of MacDonald Dettwiler and Associates’ new contract with the Canadian Space Agency to build and launch three new surveillance satellites.
$5 billion: The cost of TransCanada’s latest pipeline project to export natural gas from B.C. to Asian markets.
$88.9 billion: Record profit the U.S. Federal Reserve gave the Treasury Department in 2012, mostly from interest payments on U.S. debt it purchased.