Overview/Summary As a result of the recent economic downturn, the U.S. government has borrowed $956.

8 billion dollars during the first six months of the 2009 fiscal year. This revenue has come from countries like China as well as the U.S. governments increased issuance of short term bonds. Additionally, the government has increased its sales of 30 year bonds and is considering issuing a 50 year bond.

Opinion/Analysis Due to the economic crisis and subsequent bailout, the United States government has borrowed money in the form of short term bonds with high interest rates. It will face paying back billions in interest as a result of these high interest short term bonds. This scenario will result in the government to once again fiscally overstretch itself. Currently, the plan is to buy back the short term bonds and issue longer term bonds at the current lower interest rates. Currently, payment on the interest from these bonds is estimated to cost $500 billion a year and is expected to rise to cost over $700 billion a year by 2019. This plan exacerbates the already mounting federal deficit and has placed a severe burden on the taxpayer. Not only did many taxpayers lose personal wealth as a result of the declining stock market and drop in home prices, but the government has nearly doubled its debt in the last two years. Essentially, as a result of the subprime mortgage crisis; fault lying with no other than the average individual attempting to live beyond their means, the bailout of the auto industry as well as several large scale corporate bailouts, the government has proposed payment of this debt by issuing high interest short term bonds that it really cant afford to pay for in terms of the $500 billion dollar annual interest payments, rising to $700 billion annually in just 9 years. Its solution to this impending crisis is to cash in the short term bonds, issue long term bonds at a lower interest rate and offset this cost by purchasing $1.5 trillion in Treasury bonds and government guaranteed securities that are tied into mortgages, speculating that the housing market will rebound relatively soon. It is estimated that by mid March 2010, the Fed will raise its benchmark interest rates. When the Treasury borrows as a result of a rise in interest rates, it benefits, as a one point rise in interest rates will cost the taxpayer $80 billion a year. This certainly represents an advantage for the government

Relevance to Financial Management As a result of the Fed driving interest rates down, investors are looking at stocks and corporate bonds as options as well as investing in commodities in China and Brazil. This risk will call for increased returns and will result in providing additional funds for companies to grow.

References: Andrews, Edmund L. (2009, November 22). Wave of Debt Payments Facing U.S. Government. The New York Times. Retrieved January 30, 2010 from: http://www.nytimes.com/2009/11/23/business/23rates.html?pagewanted=1&_r=1&hp Bowley, Graham and Healy, Jack. (2009, May 3). Worries Rise on the Size of U.S. Debt. The New York Times. Retrieved January 30, 2010 from: http://www.nytimes.com/2009/05/04/business/economy/04debt.html