Morning Forex Fundamental: USD

Morning Forex Fundamental: USD

'The argument that heavy debt loads slow economic growth doesn't hold a lot of water' - Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC

Earlier this month, Paul Ryan, who is a chairman of the House Budget Committee, claimed that the enormous national debt is weighing on the economy, however, economic data on labour and housing markets do not support this claim. The U.S. national debt is currently $16.7 trillion or 106% of the gross domestic product, which stands at $15.8 trillion. With borrowing costs already close to zero, the cost of paying off the debt is significantly lower that several decades ago. The fact that businesses have increased their spending by 27% since the end of 2009, as well as the 60% growth in the number of new home construction and the creation of additional 6 million job places, are all adding to signs that the world's largest economy is gaining pace. According to the Congressional Budget Office, interest payments are expected to remain below current levels until 2018, while economic output will surge to $21 trillion.

'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.'