I was quite amused to see that FDIC Chairman Sheila Bair was described as "dissing the US Debt pile" by the New York Post today. The post was of course referring to Bair's commentary that appeared in Friday's Washington Post entitled "Will the next fiscal crisis start in Washington?
Key quotes from Bair:
"Unless something is done, federal debt held by the public could rise from a level equal to 62 percent of gross domestic product this year to 185 percent in 2035. Eventually, this relentless federal borrowing will directly threaten our financial stability by undermining the confidence that investors have in U.S. government obligations...The cost for bond investors and others to purchase insurance against a default by the U.S. government (credit default swaps) rose markedly during the financial crisis, from an annual premium of less than 2 basis points in January 2007 to 100 basis points in early 2009, before falling to the current level of 41 basis points".
"With more than 70 percent of U.S. Treasury obligations held by private investors scheduled to mature in the next five years, an erosion of investor confidence would lead to sharp increases in government and private borrowing costs" (i.e. interest rates will be going up-the long term yields are at early 2007 levels).
"Fixing these problems will require a bipartisan national commitment to a comprehensive package of spending cuts and tax increases over many years".
- Rising taxes make both new and existing structured settlements more valuable for plaintiffs in medical malpractice, auto accident, air crash, drug and product liability litigation and workers compensation claimants.
- Rising interest rates will make structured settlements increasingly more popular.
Click Taxable Equivalent Yield Chart to see the effect of rising tax brackets at various levels of structured settlement internal rates of return. You can also use the chart to learn what your taxable investment will be worth after taxes.
Like the Depression era optimists who sang "Happy Days Are Here Again" in the 1930s, let's get serious but keep smiling because "every 'ting is gonna be alright"