Aside from your taxes likely going up (a good reason to be in a Roth IRA or Roth 401K...to be covered in another post), the US needs to "raise" the money for the stimulus from somewhere. This is done through the sale of US Treasuries, typically to foreign nations.
Take a moment and consider the following points that affect our nation right now:
- The projected US federal deficit is $1.5 trillion in fiscal 2009 and $1.25 trillion in fiscal 2010.
- The Treasury will have to issue nearly $3 trillion in debt to keep the US moving along.
- Foreigners have bought nearly 2/3 of US debt in the past.
- China alone held $696.2 billion in US Treasury Securities at the end of December 2008 and Japan held 578.3 billion. This is more debt than the UK, Germany, France, Brazil, Russia, Taiwan, Mexico, Italy, Sweden, Canada, Korea, India, Belgium and many other nations hold COMBINED.
- The rates paid on US debt today are at rock bottom lows.
Now ask yourself this, if the outside world is looking at the US and seeing its industries crumble (auto, banking, airlines, etc), how interested do you think they are going to be in buying billions more US debt that pays extremely low rates?
OK, never mind if they want to buy it, many nations CANNOT buy it. Natural resource producing nations have had their income crushed by declining prices. Look at oil for example....$34.67/barrel at the time of this writing. Don't like that excuse? How about the major economies that relied on the US export market to pile up money? These nations then "recycled" those funds and bought more US debt. Well, if you haven't noticed, the export market sucks right now so those nations don't have a surplus to spend with the US.
The point is that whether nations don't want to buy US debt or cannot buy US debt, the US is going to have trouble funding the next 2 years. The best way to encourage nations to buy US debt is to raise the interest rates and provide higher yields. Everyone knows what happens when we go down that path. Inflation.