BC WOULDUSDEFAULT
Saved by @sidonkar

Is US going to default on its debt?

This đŸ§” will surely help you understand. Do ‘re-tweet’ & help us educated investors (1/13)

 How does a country run?

Assume a country to be like a company, which has income & expenses. Income source can be tax collections & expense can be government employee salaries, defence sending’s, social security schemes etc. (2/13)
Generally, most economies are running a deficit; their income is less than expense. So if your income is 100 and expense is 105, where do you get the 5? You borrow!

Similarly US has been borrowing & the total debt today roughly stands at a whooping $28.5T. (3/13)
Deficit in the last 2 years has gone up significantly because of COVID + the government wants to spend more; a $3.5T spending package is what they are trying to get an approval for + older debt is coming up for maturity (4/13)
Okay, so I am saying they will raise more debt for the deficit of COVID, the new package & paying older debt off?

Ideally a yes but they are not allowed to borrow more! (5/13)
Why can’t they take more debt?

During the 1st world war, US understood if they keep spending money on the war, the debt will be a big liability 4 the future generation & hence they introduced a ceiling on the maximum debt US could take. In 1917, this was capped at $1 Billion
What happened when the $1B debt was reached?

Political parties would pass a legislation to increase the debt limits. From $1B in 1917, the debt ceiling has been moved up multiple times to the current $28.5T (https://t.co/XaLWSSGxN5), which is about to get reached now (7/13)
So what happens now?

Political parties (Like India has BJP & congress, US has Democrats & Republicans) need to agree on either suspending the debt ceiling all together or increasing the limit of borrowing by passing legislation like they have been doing in the past (8/13)
So that’s easy right?

May be, but republicans r nt in favor of suspension or âŹ†ïž in the debt ceiling. But this is common, has happened multiple times in the past. Till the legislation is passed, the government shuts down for few days & is back in action as soon as it is passed
What happens if Republicans don’t agree?

A suspension or rise in the debt ceiling can be passed through a process known as budget reconciliation, due to Democrat's majority in the Senate. But some conservative democrats may not support âŹ†ïžin spending so this may face challenges
What is the impact if at all nothing works?
Doomsday! US can't borrow more & can default eventually!

-US will not be able to pay salaries to government employees, will not be able to release social security payments, will not be able to pay other liabilities (11/13)
- US interest rates will go up (you want more returns if the risk increases)
- $ will crash
- Both of the above to have a massive impact on world trade & markets as still 84% of the world trade happens in $ & other countries have huge investments in US treasuries (12/13)
Consensus view - We might see some delay but US will not let its debt default! (13/13)
This is my 43rd thread, 'do re-tweet'

Have earlier written on,
-Sector Analysis - Banking, Paints, Logistic, REIT, InvIT, Sugar, Steel
- Macro
- Debt Markets
- Equity
- Gold
- Personal Finance etc.

You can find them all in the link below https://t.co/UrRt87xaU7 (END)

More from Kirtan A Shah

Kirtan A Shah
Kirtan A Shah
@kirtan0810
Market PE at 40 and yet the market is not falling, why? Getting asked this question multiple times. Here's a thread covering ‘very basic’ premier on valuation for my retail investor friends.

Do hit the ‘re-tweet’ and help us educate more investors (1/n)


For us to be able to comprehend the situation, we need to understand 4 very basic valuation matrixes
(1) Trailing EPS
(2) Forward EPS
(3) Trailing PE
(4) Forward PE

Formula

EPS = Profit After Tax / Number of outstanding Shares
PE = Market Price / EPS (2/n)

So what's a trailing EPS?

So in March 2020, RIL generated a Profit after tax (PAT) of 39,354 cr. The number of outstanding shares of RIL is some 676.21 cr. which means the 39,354 cr of PAT belongs to the 676.21 cr. shareholders, right? (3/n)

That also means that per share, RIL earned Rs. 58.20 (39,354/676.21). This 58.20 is called the trailing (TTM) EPS. Trailing means past, already done. (4/n)


So RIL earns 58.20 rupees per share but you pay 58.20 * 33.16 = 1930, 33.16 times more to buy 1 share from the market, that 33.16 is called the Price/Earnings (PE) ratio. This is again trailing as 58.20 EPS is trailing. (5/n)
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Kirtan A Shah
Kirtan A Shah
@KirtanShahCFP
Here’s a compilation of Personal Finance threads I have written so far. Thank you for motivating me to do it.

Hit the 're-tweet' and help us educated more investors

Yes Bank’s additional Tier 1 bonds, written off. Lakshmi Villas Banks Tier 2 bonds, written off. Understand what & why of ATI and Tier 2 bonds in this thread.

https://t.co/VBmV2dwpPn (1/n)


'Floating Rate Funds' - A case for debt investing in the current interest rate situation


Fixed Income investment strategies

It’s a misconception that FD, RBI Bond, PPF etc have no risk. The reason we don’t see the risk in them is because for us, risk ONLY means loss of capital.


Index Funds v/s ETFs

While index funds and ETF’s look similar, there are multiple differences you need to keep in mind before investing in either of them. Let me highlight the important ones
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Kirtan A Shah
Kirtan A Shah
@KirtanShahCFP
Last Akshay Tritiya, had written the below thread đŸ§” on which is the best way to buy gold, Physical, Digital, ETF or Sovereign Gold Bond and why?

Do re-tweet and help us educate more retail investors

#investing
GOLD
Kirtan A Shah
Kirtan A Shah
@KirtanShahCFP
Should you add more in Equity or redeem right now?

A thread đŸ§”to guide retail on why & what should they do at these historic market highs.

Do ‘re-tweet’ and help us educate more retail investors (1/n)

#investing #StockMarket

Some investors feel that markets are trading at a PE of 27 vs 10 years historical average of 20 and a market-cap to GDP of 105 vs historical average of 79 and hence markets look expensive (2/n)


But, in such crazy liquidity driven markets, prices can move much ahead of the fundamentals & suddenly we start hearing commentaries of how the market is pricing in the earnings of FY 22 & 23 to justify the rally

If you r new to fundamentals, 👇 can help


Results for Q4 have come out very well but that is also because of the lower base effect of the last year.

Over the last many years, markets have corrected 10-15% each calendar year. Can it happen this year as well? Can very much and that can be a great entry point. Why? (4/n)


There are a lot of over hangs in the near term,
-Crude going up
-$ index moving up
-Inflation moving up
-COVID uncertainties
All of the above are –ve for markets & liquidity on the other side driving markets up, its impossible to judge the near term movement of the markets (5/n)
STOCKSLEARNINGS , ALL , PE THREAD
Kirtan A Shah
Kirtan A Shah
@KirtanShahCFP
Have been bullish on #gold since $1786, Gold at $1910 today.

#investing
GOLD

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