Is US going to default on its debt?

This ЁЯз╡ will surely help you understand. Do тАШre-tweetтАЩ & 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 sendingтАЩs, 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 canтАЩt 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 thatтАЩs easy right?

May be, but republicans r nt in favor of suspension or тмЖя╕П 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 donтАЩt 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 тмЖя╕Пin 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

Personal Finance 101 тАУ My learningтАЩs about investing

This topic is for everyone, whether you manage your money yourself or through your advisor, it will go a long way in managing your finances.

Do re-tweet & help us educate retail investors (1/n)


Subscribe to our YouTube for some interesting educational content around Personal Finance -
https://t.co/jvgNEDWiAZ

And you can also join our Telegram channel for regular updates тАУ https://t.co/Ekz6I8pDGt (2/n)

(1) Lets start with Life Insurance

Term Insurance is the best way to take an insurance cover & probably the only product to buy in life insurance. Make sure u disclose all the necessary information before taking the insurance. Smoking, Alcohol, any pre-existing deceases etc(3/n)

Have atleast 10-15 times of your annual income as insurance cover

But there are variants of term insurance that you should avoid (4/n)

(A) Term plan with return of premium

For a non-smoker born on the 1st Jan 1985 & policy term 39 years (till age 75), the regular premium for a 1-cr term insurance is 22,157 (inclusive of GST) but with returns of premium is 42670 (inclusive of GST). An increase of 20,513 (5/n)

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рдорд╣рд╛рднрд╛рд░рдд рдХреА рдХрд╣рд╛рдиреА рдХреМрди рдирд╣реАрдВ рдЬрд╛рдирддрд╛редрд▓реЗрдХрд┐рди рдХреНрдпрд╛ рдЖрдкрдХреЛ рдкрддрд╛ рд╣реИ рдХрд┐ рдорд╣рд╛рднрд╛рд░рдд рдХреЗ рдЬреНрдпрд╛рджрд╛рддрд░ рдкрд╛рддреНрд░ рдХрд┐рд╕реА рди рдХрд┐рд╕реА рд╢реНрд░рд╛рдк рдореЗрдВ рдлрдВрд╕реЗ рдереЗредрдЕрдЧрд░ рдпреЗ рд╢реНрд░рд╛рдк рди рд╣реЛрддреЗ рддреЛ рдХрджрд╛рдЪрд┐рдд рдорд╣рд╛рднрд╛рд░рдд рдХреА рдХрд╣рд╛рдиреА рдХреБрдЫ рдФрд░ рд╣реЛрддреАредрд╣рд┐рдиреНрджреБ рдкреМрд░рд╛рдгрд┐рдХ рдЧреНрд░рдВрдереЛрдВ рдореЗрдВ рд╡рд┐рднрд┐рдиреНрди рд╢реНрд░рд╛рдкреЛрдВ рдХрд╛ рд╡рд░реНрдгрди рдорд┐рд▓рддрд╛ рд╣реИ рд╡ рд╣рд░ рд╢реНрд░рд╛рдк рдХреЗ рдкреАрдЫреЗ рдХреЛрдИ рдХрд╣рд╛рдиреА рдЕрд╡рд╢реНрдп рд╣реЛрддреА рд╣реИред


рдЖрдЗрдП рдЖрдЬ рдЬрд╛рдирддреЗ рд╣реИрдВ рдорд╣рд╛рднрд╛рд░рдд рдХрдерд╛ рдореЗрдВ рд╡рд░реНрдгрд┐рдд рдХреБрдЫ рд╢реНрд░рд╛рдкреЛрдВ рдХреЗ рдмрд╛рд░реЗ рдореЗрдВред

1) рд░рд╛рдЬрд╛ рдкрд╛рдгреНрдбреБ рдХреЛ рдЛрд╖рд┐ рдХрд┐рдиреНрджрдо рдХрд╛ рд╢реНрд░рд╛рдк

рдПрдХрдмрд╛рд░ рдорд╣рд╛рд░рд╛рдЬ рдкрд╛рдгреНрдбреБ рд╢рд┐рдХрд╛рд░ рдЦреЗрд▓рдиреЗ рд╡рди рдЧрдПредрдЭрд╛рдбрд┐рдпреЛрдВ рдХреЗ рдкреАрдЫреЗ рдХреБрдЫ рд╣рд┐рд▓ рд░рд╣рд╛ рдерд╛ред рдореГрдЧ рд╣реИ рд╕реЛрдЪрдХрд░ рд░рд╛рдЬрд╛ рдиреЗ рдмрд╛рдг рдЪрд▓рд╛рдпрд╛ рдЬреЛ рдЬрд╛рдХрд░ рдЛрд╖рд┐ рдХрд┐рдиреНрджрдо рдФрд░ рдЙрдирдХреА рдкрддреНрдиреА рдХреЛ рд▓рдЧрд╛редрд╡реЗ рджреЛрдиреЛ рд░рддрд┐-рдХреНрд░реАрдбрд╝рд╛ рдореЗрдВ рд▓рд┐рдкреНрдд рдереЗред

рдЬрдм рд░рд╛рдЬрд╛ рдиреЗ рдЙрдиреНрд╣реЗрдВ рджреЗрдЦрд╛ рддреЛ рдмрд╣реБрдд рджреБрдЦреА рд╣реБрдП рдХрд┐ рдпреЗ рдореБрдЭрд╕реЗ рдХреНрдпрд╛ рдкрд╛рдк рд╣реЛ рдЧрдпрд╛редрдмрд╣реБрдд рдХреНрд╖рдорд╛ рдпрд╛рдЪрдирд╛ рдХреЗ рдмрд╛рдж рднреА рдХрд┐рдиреНрджрдо рдЛрд╖рд┐ рдиреЗ рдкрд╛рдгреНрдбреБ рдХреЛ рд╢реНрд░рд╛рдк рджреЗ рджрд┐рдпрд╛ рдХрд┐ рдЬрдм рднреА рд╡реЛ рдХрд┐рд╕реА рд╕реНрддреНрд░реА рдХреЛ рдХрд╛рдо рднрд╛рд╡рдирд╛ рд╕реЗ рд╕реНрдкрд░реНрд╢ рдХрд░реЗрдВрдЧреЗ рдЙрд╕реА рдХреНрд╖рдг рдЙрдирдХреА рдореГрддреНрдпреБ рд╣реЛ рдЬрд╛рдПрдЧреАредрдкрд╢реНрдЪрд╛рддрд╛рдк рдХрд░рдиреЗ, рд╡реЗ рд╕рд┐рдВрд╣рд╛рд╕рди рдкреЗ рдЕрдиреНрдзреЗ рд░рд╛рдЬрд╛ рдзреГрддрд░рд╛рд╖реНрдЯреНрд░ рдХреЛ рдмреИрдард╛рдХрд░...


..рд╕реНрд╡рдпрдВ рдЕрдкрдиреА рд░рд╛рдирд┐рдпреЛрдВ рдХреБрдВрддреА рд╡ рдорд╛рджреНрд░реА рдХреЗ рд╕рд╛рде рд╡рди рдЪрд▓реЗ рдЧрдПредрдкрд╛рдВрдбрд╡реЛрдВ рдХрд╛ рдЬрдиреНрдо рднреА рдХреБрдВрддреА рдХреЛ рдЛрд╖рд┐ рджреБрд░реНрд╡рд╛рд╕рд╛ рджреНрд╡рд╛рд░рд╛ рджрд┐рдП рдЧрдП рдордВрддреНрд░ рд╕реЗ рд╣реБрдЖ рдерд╛ рдЬрд┐рд╕рдореЗ рдХрд┐рд╕реА рднреА рджреЗрд╡ рдХрд╛ рд╕реНрдорд░рдг рдХрд░ рдЙрд╕ рджреЗрд╡ рд╕реЗ рдХреБрдВрддреА,рдкреБрддреНрд░ рдкреНрд░рд╛рдкреНрдд рдХрд░ рд╕рдХрддреА рдереАредрдПрдХ рдмрд╛рд░ рдорд╛рджреНрд░реА рдкреЗ рдореЛрд╣рд┐рдд рд╣реЛ рдЬрдм рдкрд╛рдВрдбреБ рдиреЗ рдЙрд╕реЗ рд╕реНрдкрд░реНрд╢ рдХрд┐рдпрд╛,рдЙрд╕реА рдХреНрд╖рдг рдкрд╛рдВрдбреБ рдХреА рдореГрддреНрдпреБ рд╣реЛрдЧрдпреАред


2) рдЙрд░реНрд╡рд╢реА рдХрд╛ рдЕрд░реНрдЬреБрди рдХреЛ рд╢реНрд░рд╛рдк

рдорд╣рд╛рднрд╛рд░рдд рдпреБрджреНрдз рд╕реЗ рдкрд╣рд▓реЗ рдЬрдм рдЕрд░реНрдЬреБрди рджрд┐рд╡реНрдпрд╛рд╕реНрддреНрд░ рдкреНрд░рд╛рдкреНрдд рдХрд░рдиреЗ рд╕реНрд╡рд░реНрдЧ рдЧрдП рддреЛ рд╡рд╣рд╛рдВ рдЙрд░реНрд╡рд╢реА рдирд╛рдо рдХреА рдЕрдкреНрд╕рд░рд╛ рдЙрди рдкрд░ рдореЛрд╣рд┐рдд рд╣реЛ рдЧрдпреАред рдЕрд░реНрдЬреБрди рдиреЗ рдЬрдм рдЙрдиреНрд╣реЗрдВ рдЕрдкрдиреА рдорд╛рддрд╛ рдХреЗ рд╕рдорд╛рди рдмрддрд╛рдпрд╛ рддреЛ рдпрд╣ рд╕реБрдирдХрд░ рдЙрд░реНрд╡рд╢реА рдХреНрд░реЛрдзрд┐рдд рд╣реЛ рдЧрдпреА рдФрд░ рдЕрд░реНрдЬреБрди рдХреЛ рд╢реНрд░рд╛рдк рджреЗ рдбрд╛рд▓рд╛ рдХрд┐ рддреБрдо рдирдкреБрдВрд╕рдХ рдХреА рднрд╛рдВрддрд┐...