Treasury Junk Bonds

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Amidst the grand hoopla that is the current election campaign, a recent report in the Financial Times of London (Jan. 11) went largely unnoticed in the American press.

Moody’s, the independent bond-rating company, announced in its annual report on the U.S. that America is in danger of losing its triple-A rating, because of rapidly rising entitlement spending – specifically, rising Medicare, Medicaid, and Social Security costs.

These entitlement programs, which together consumed 25% of the U.S. budget in 1975, are now consuming 45% – and the boomers are only now beginning to retire. The next ten years will see the tsunami of boomer retirees demand their entitlement goodies.

However, despite warnings by Congressional Budget Office chief Peter Orszag and Comptroller General David Walker that these entitlement programs are about to explode, most of the candidates have been promising to expand health care to cover the 40 million said to be uninsured. All of this makes it likely that U.S. Treasury notes will be junk bonds in the not too distant future.

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