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Could US Debt Derail The Rally?

On the eve of the 1st year anniversary of the March 2009 lows, we can’t help but wonder what might derail this bull?

Oh sure, we know Fast Money Executive Producer wrote in his blog that if a bull can make it to 1 – it can, on average, make it to 4.

What? You didn’t read it.

Melloy did some investigating and learned that the 13 bull markets since 1930 that have lasted more than a year have averaged, a total gain of 153% and a total length of 4.4 years, according to data from Bespoke Investment Group. (Click here to read Melloy's entire post.)

But we starting thinking - the past 18 months have been anything but average. The government okayed $800 billion in debt to fund an unprecedented stimulus.

Could all that debt derail this rally.

On the surface you'd sure think so. But Zach Karabell of RiverTwice says probably not.

In an article penned for Time magazine Karabell makes the argument the amount the U.S. pays to service the national debt isn't particularly onerous.

What - that goes against all the conventional wisdom? Why???

Because interest rates are so low.

”At the beginning of 2000, it cost the U.S. government more than 6.5% to borrow money. Now it costs less than 2.5%. That means we can borrow 2½ times as much today for the same cost,” says Karabell.

Although Karabell does think it’s prudent to pay down debt, he doesn’t think it has to happen anytime soon.

“Half of the debt of trillions of dollars is owed by the federal government to itself, and a quarter more is owed to the American public,” Karabell says.

”Because of the unique role of the dollar as the global reserve currency, the debt the government owes itself can simply be rolled over endlessly. “

”Only the interest payments are a must. As long as the dollar remains central to the global system — and there is little chance of that changing in the next decade — the U.S. will have the latitude to borrow more than most other countries.”

What do you think? We want to know!



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Trader disclosure: On March 8th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (X), (BAC); Nations Owns (MSFT), (SPY); Kelly Owns (AMZN) Calls; Kelly Owns (ELX) Calls; Karabell Owns (C), (JPM), (UYG), (AAPL), (CSCO), (DRYS), (GOOG), (GE), (IBM), (RIMM), (MON); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), NUE); Karabell Owns (C), (JPM), (UYG), (AAPL), (CSCO), (DRYS), (GOOG), (GE), (IBM), (RIMM), (MON); Jon Najarian Owns (AAPL), Is Short (AAPL) Calls; Jon Najarian Owns (DIS), Is Short (DIS) Calls; Jon Najarian Owns (DRYS), Is Short (DRYS) Calls; Jon Najarian Owns (GE), Is Short (GE) Calls; Jon Najarian Owns (HPQ), Is Short (HPQ) Calls; Jon Najarian Owns (IBM), Is Short (IBM) Calls; Jon Najarian Owns (MCD), Is Short (MCD) Calls; Jon Najarian Owns (MON), Is Short (MON) Calls; Jon Najarian Owns (MOS), Is Short (MOS) Calls; Jon Najarian Owns (RIMM), Is Short (RIMM) Calls; Jon Najarian Owns (GOOG) Call Spreads; Jon Najarian Owns (IMAX) Call Spreads; Jon Najarian Owns (GS), Is Short (GS) Calls; Jon Najarian Owns (CSCO), Is Short (CSCO) Calls; Pete Najarian Owns (MCD) Call Spread; Pete Najarian Owns (AKAM) Call Spread; Pete Najarian Owns (BAC) Call Spread; Pete Najarian Owns (DF) Call spread; Pete Najarian Owns (DRYS) Calls; Pete Najarian Owns (F) Calls; Pete Najarian Owns (INTC) Calls; Pete Najarian Owns (ITMN) Call Spread; Pete Najarian Owns (MCD) Call Spread; Pete Najarian Owns (TIVO) Call Spread; Cortes Owns (GS), Is Short S&P 500; Cortes Owns (IAI); Cortes Is Short Treasuries; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (USO); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Own (BAC) Preferred; Finerman's Firm And Finerman Own (GOOG); Finerman's Firm And Finerman Own (WFC); Fienrman's Firm Owns (YUM); Terranova Owns (GLD) March Puts; Terranova Owns (AAPL), (EMC), (DELL), (GOOG)

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