Investors eye US debt situation

WITH the US Presidential elections over, investors' attention will be directed to events in the US with terms such as "US debt ceilings" and "fiscal cliff" hitting the headlines.

Total US debt now sits at $16.1 trillion dollars, for example.

The easiest way to understand the current state of affairs is to remove a total of eight zeros and imagine them as a simple household debt.

In that case the $16.1 trillion gets reduced down to $161,000 meaning the US family owes $161,000 on the credit card.

Last year our US family received a total of $23,000 in wages in the form of taxes, stamp duties. However, they actually spent $34,000.

Our expenses were interest on the credit card bill, social security payments, and wages to public servants, defence spending and other Government services.

Last year the shortfall between our income and expenses therefore amounted to $11,000 and our US family funded this gap via the credit card, partly to continue stimulating their economy and maintain jobs.

The credit card debt is approaching its limit and in early 2013 the US government must go back to Congress and apply for an increase, known as the debt ceiling.

Obama's previous cutbacks amounted to $6,000, most are cuts to defence spending, but the Republicans and Democrats have opposing views and with a number of policies ending on January 1, the term fiscal cliff is being used.

In Europe, leaders have taken the road of cutting their spending. Meanwhile the US, believing a healthy economy is the solution, continues with stimulus measures in order to maintain employment.

On a positive, the US economy is slowly recovering and thus our US family's earnings are increasing and in turn it's hoped that debt levels will be reduced.

Jason Mcfadden is a Certified Financial Planner with JPM Financial Planning. This editorial is general advice only.



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