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US Government Needs to Deleverage: Economist

The U.S. government will have to follow its citizens and corporates in deleveraging its balance sheet, Bob Baur, chief global economist, Principal Global Investors, said Wednesday.

'The National Debt Clock ' is displayed on the side of a building near an Internal Revenue Service office in New York.
Scott Eells | Bloomberg | Getty Images
'The National Debt Clock ' is displayed on the side of a building near an Internal Revenue Service office in New York.

“It’s no question that we’re going to see more deleveraging. Households are in much better shape and companies have improved their balance sheets dramatically. It’s the government that needs to deleverage,” he told “Squawk Box Europe.”

He added that some deleveraging had begun at the state level, but had yet to reach central government.

The U.S. government, which pumped trillions of dollars into bailouts of the banking and automobile sector and buying mortgage-backed securities to help lenders Fannie Mae and Freddie Mac, has more than $15 trillion in debt – the ceiling for borrowing is set at $16.4 trillion.

It is also facing demographic problems such as an aging population and subsequent rising Medicare bill, which might handicap the speed at which it can reduce its debt.

Baur is optimistic on the outlook for the U.S. economy and doesn’t believe that the U.S. is in depression.

Robert Shiller, the renowned economist and founder of the Case-Shiller index, said on CNBC there was a “late Great Depression” on its way earlier this week – but later retracted his comments.

“International trade essentially stopped during the Great Depression,” Baur said. “We have a much freer trading system right now than we did then so that’s a real advantage.”

There are concerns about whether the U.S. will suffer from the euro zone debt crisis.

“We think what happens in Europe would really have to be severe,” Baur said.

“I’m not sure the mild recession we’re seeing will have a huge effect. If there was a Lehman-style credit crunch in the EU that would certainly have feedback loops into the U.S.”

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