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Rising US deficit hampering growth? Results say otherwise

FXstreet.com (Barcelona) - Representative Paul Ryan, chairman of the House Budget Committee, recently declared this month that the U.S. national debt “is hurting our economy today.” Indeed, this is not a very isolated stance, as almost every Republican and even some Democrats embrace it.

However, Economic data – on jobs, housing and investment – simply don’t support that claim. Economists across the political spectrum dispute the best-known study of the subject, by Carmen Reinhart and Kenneth Rogoff, which found that nations with debt loads greater than 90% of their economies grow more slowly. That being said, three years after a government spending surge in response to the recession, which drove the U.S. past that red line – the United States’ USD $16.7 trillion total debt is now 106% of the $15.8 trillion economy – key indicators reflect gathering strength. Businesses have increased spending by 27% since the end of 2009. Moreover, the annual rate of new home construction jumped about 60% and employers have created almost 6 million jobs.

With borrowing costs near record lows, the cost of paying off the debt is lower now than in the year Ronald Reagan left the White House, as a percentage of the economy.
“The argument that heavy debt loads slow economic growth doesn’t hold a lot of water,” says Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia who oversees $12 billion. “It suffers from a mix-up of cause and effect: When weak economic conditions arise, it tends to encourage deficit spending, which is what has led to more U.S. debt being issued, and not the other way around.”

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