This whole Government Shut-down caused by the American debt issue has become internationally famous, but do you really understand what it is about? Well, lets break it down into small easily understandable chunks. America owes a lot of debtors an enormous amount of money. As at 14 October 2013 They owe exactly $16,754,441,549,196.53 almost 16.8 Trillion US dollars.
Debtors – Who does the USA owe?
Bond holders are the main debtors of the American Government. Much of the debt is owed to the same american people who own retirement funds, since the retirement funds mostly buy up Government Bonds as they are generally considered low risk. China is one of America’s biggest lender, estimated at about 1.3 trillion dollars, if there is a default, China would not like that, it could have long term consequences. China and other countries or international institutions looking to store excess cash would quickly start to move their investments into other less risky investment destinations.
Others owed by the United States of America are Japan at 1.1 trillion dollars, individuals, brokers and other international corporations are owed a combined total of 1 trillion dollars. Other countries combined are owed 2.6 trillion dollars, these countries include, Chile, Mexico, Canada, The United Kingdom, France, Luxermburg, Korea, Hong Kong, Russia, Poland, Germany, Egypt, Australia, Brazil, Colombia, Israel, Turkey, Sweden, Norway, Ireland, Netherlands, Belgium, Italy, Thailand, Taiwan, India, Philippines, Malaysia and Singapore. While the rest is owed to the same American institutions and government bodies within the country.
Michael J.Astrue who ran the social security as a commissioner in America during president G.W.Bush’s and Obama’s administrations (2007-2013) was asked what a default would mean for the social security trust fund and after chuckling he said: “It would be a very bad thing to do. I’m keeping my fingers crossed that it doesn’t happen, cause it would create a lot of wreckage in the country as a whole”. He went on to explain that for social security in isolation, it would have its benefits. The social security trust fund is owed by America 2.6 trillion dollars in treasury bonds it purchased.
The effects of a USA default.
A default by America would see the trust fund buy bonds which pay a higher interest rate as America would have to raise interest rates in US treasury bonds, and that would benefit the solvency of this trust fund. On a side note, the American disability trust fund is due to be insolvent as soon as 2016, while the retirement trust fund is due to be insolvent by 2033. The estimated population of the American people is 316,844,417 about 316.8 Million, which would mean that each person owes various international lenders about $52,879.08
Increasing by $1.82 billion per day since September 30, 2012 on average, since Obama came into office, he has added 6.5 trillion dollars to the US national debt in just one term, where all the other presidents since the first President, George Washington to George W Bush from 1789 till 2008, a total of 43 presidents have not managed to raise the national debt to such an amount. Though in fairness Obama did find the American state of affairs in dire crisis.
It only remains to be seen when the USA created world bubble based on paper currency will collapse. Yesterday this government announced that they had reached an agreement to end the government shut-down, but only in January again will this same issue loom over the heads of people in countries all around our planet. An American default on its bills is utterly inevitable.