Current annualized U.S. GDP growth and inflation forecasts broadly seem to be in the order of 3.3% and 2.7% respectively. At the same time current U.S. dollar forecasts suggest that the U.S dollar measured against the Euro will remain in the present trading range for the balance of 2007. Given the current state of U.S. trade deficits, the extent of and continuous growth in U.S. debt, the current sub-prime issues affecting stock markets, U.S. Consumer debt and dollar concerns, ongoing conflicts in Iraq and Afghanistan, and ongoing terrorism concerns, we think any such forecasts should be viewed with healthy skepticism. Inflation forecasts likewise may be effected by the Feds 50 basis point drop in interest rates last week. Stay tuned.

The U.S. Federal National Debt stood at approximately $8.9 trillion in July, 2007, of which approximately 44% was U.S. ‘Intragovernmental Debt’, 31% was owed to U.S. citizens, and 25% was owed (primarily) to other countries. The following chart is based on data extracted from U.S. Government statistics:

FusionCharts

This data suggests that the U.S. National Debt was approximately $1 trillion at the end of 1982, had grown to $4.5 trillion by 1993, and has further doubled since then. Whereas GDP was more than 3 times the National Debt in 1982, by 1993 and after that date the aggregate National Debt has continuously been about two-thirds of GDP in any given year. it strikes us that in a recessionary period where GDP growth dropped, the National Debt could become an enormous issue that likely would exacerbate a poor economic environment and make it worse than it otherwise would be. Given the multiplicity of factors that could bear on the GDP, inflation and dollar exchange rate forecasts, stock market investors need to monitor those factors carefully and reach their own conclusions as to their respective meaning and significance to any particular investment portfolio.

Readers with contrary, different or similar views, or who have constructive suggestions as to how the continuing growth in the U.S. National Debt in the context of GDP growth or retraction can be viewed positively in an American context are invited to comment. Comments dealing with reader’s specific concerns, and that link those concerns to other current and propsective economic conditions will be of particular interest.

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