The talk around Wall St. nowadays is what’s going to happen after the US economy recovers. The government has amassed huge debt to jump start the economy. The US consumer is drowning in debt, which caused the recession in the first place. No action has been taken to alleviate these problems.

The US Government debt as percent of GDP is in the 80% range. Government debt levels are close to reaching the $12,100 bln limit set by Congress. Total debt to GDP is close to 350%, outpacing the rate of the Great Depression and World War II periods.

Many fear that the US is going to face a fate similar to Japan in the 90’s when their debt levels were high (although lower than the US) and faced a period of stagnation. Consumption is about 70% of GDP, and as consumers delever and increase saving, consumption will falter. They also believe that the government will go back to the consumers and tax them after the recession to pay down the debt. All of these factors will cause growth levels to decline. Leverage was a main contributor to GDP growth in the 90’s an early 2000’s, so with the lack of this leverage, GDP growth rates will suffer.

On the other side of the coin is Kuwait. The government has not been doing much to combat the recession, other than entertaining obnoxious proposals by MPs (see Want a one year PAID vacation? Get Fired NOW*). Kuwait’s government debt to GDP is slightly higher than 6%, largely due to the fact that high oil prices in the past years led to large budget surpluses. When the Kuwaiti economy recovers along with the Global economy, Kuwait will not face the same lingering leverage problem as the US and other nations.

My recommendation is that the government should jump start the economy so that it recovers faster. The government can spend money on developmental projects, such as the building of new hospitals, renovation of schools, improvement of the infrastructure, etc. The government has the luxury of spending the surpluses it had accumulated throughout the years without worrying about debt and leverage. However, one look at the government and the parliament makes these recommendations look farfetched.