Is US going to default on its debt?

This 🧵 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 ⬆️ 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 ⬆️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)

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1. IQ is one of the most heritable psychological traits – that is, individual differences in IQ are strongly associated with individual differences in genes (at least in fairly typical modern environments). https://t.co/3XxzW9bxLE


2. The heritability of IQ *increases* from childhood to adulthood. Meanwhile, the effect of the shared environment largely fades away. In other words, when it comes to IQ, nature becomes more important as we get older, nurture less.
https://t.co/UqtS1lpw3n


3. IQ scores have been increasing for the last century or so, a phenomenon known as the Flynn effect. https://t.co/sCZvCst3hw (N ≈ 4 million)

(Note that the Flynn effect shows that IQ isn't 100% genetic; it doesn't show that it's 100% environmental.)


4. IQ predicts many important real world outcomes.

For example, though far from perfect, IQ is the single-best predictor of job performance we have – much better than Emotional Intelligence, the Big Five, Grit, etc. https://t.co/rKUgKDAAVx https://t.co/DWbVI8QSU3


5. Higher IQ is associated with a lower risk of death from most causes, including cardiovascular disease, respiratory disease, most forms of cancer, homicide, suicide, and accident. https://t.co/PJjGNyeQRA (N = 728,160)