Tan Kin Lian's Blog: US Debt of USD 13 trillion

Friday, June 04, 2010

US Debt of USD 13 trillion

The debt of the US Federal government has readed USD 13 trillion, is 13 followed by 12 zeroes.

Many governments faced large debts amounting to a high proportion of the GDP. They include many countries in Europe, the UK and Japan. We have seen what happened with the Euro when Greece, Spain and now Hungary gets into trouble. It will be a matter of time, before the loss of confidence affects the US dollar. When that happens, there will be a bigger financial crisis.

I do not have an answer about what can be done to protect our savings from this impending disaster. Perhaps, the best form of investments is in productive assets, i.e. the shares of companies that run an operation and earns a profit. While the values of the shares may drop in a crisis, the company should continue to earn a profit and pay a dividend. If business is bad, the company can cut cost by reducing their workforce.

It is important to reduce debts. When a crisis hits, the banks will pull back the loans. Those who have borrowed money will have to sell assets at highly depressed prices to repay the loans. This will include borrowings to buy investment properties.

The prognosis for the global economy is discouraging. It reflects the failure of the capitalist and free market system. We do not need to revert to full socialism. A better model is a regulated market, fairer distribution of income and higher taxes for those that earn extreme incomes.

Tan Kin Lian

27 comments:

Anonymous said...: If US debt become a crisis, your following statement is incorrect:

"While the values of the shares may drop in a crisis, the company should continue to earn a profit and pay a dividend. If business is bad, the company can cut cost by reducing their workforce."

Basically no asset or investment will not be affected or can survived in a crisis of US debt, because the implication is too huge to be imagined in mankind history. In order to protect value, there are only one assest can survive: GOLD, the only remaining safe heaven currency.

I am not promoting Gold. I am not vested in Gold now.

Rgds,
KK; June 04, 2010 9:25 AM
Jackology said...: Mr Tan,

You were right, it is indeed 9 "0" and 12 "0".
http://en.wikipedia.org/wiki/Trillion

I didn't realised till it is today. =)

Jackology; June 04, 2010 9:28 AM
Tan Kin Lian said...: reply to KK 9:25 am
I agree that all assets, including shares, will drop in value. That is why I focused on the dividends that can be earned by companies. They are still needed to produce the goods for the world populatoins.; June 04, 2010 10:00 AM
Anonymous said...: Hi Mr Tan
When I saw the number in the headlines in today's paper, I thought it was a TOTO result.
Anyway a trillion is thousand billion not billion billion.

How did they get this figure? I think SG should publish our debt openly too, esp HDB debt of Singaporeans. A lot of Singaporeans have a debt in the form of HDB. HDB should be known as "High Debt Burden" not "Housing Development Board". We may end up like US one day.

We are living in a world of excess. We should read more of Tommy Wong's "Wisdom on How to Live Life"

kny; June 04, 2010 10:05 AM
Gideon said...: Mr Tan,

It is 12 digits not 18 digits -

http://www.brillig.com/debt_clock/

Gideon; June 04, 2010 10:07 AM
Anonymous said...: personally i rather eat three simple meal a day amd sleep in government shelter/ park/beach than let the govenment waste so much money on the big corps and fat cats, their wasting spree habits is in their DNA, if it is just a personal decision, i rather let them fail.; June 04, 2010 10:17 AM
Anonymous said...: Hi Jackology, the wikipedia reference seems to say that one trillion is twelve zeros (which is the common meaning in English Language usage).; June 04, 2010 10:44 AM
Anonymous said...: Greece owed US$300,000,000 and got themselves in trouble.

USA owed US$13,000,000,000,000 and Dow Jones still going up.

Why?

I think is market confident.

.Iran and North Korea nuclear ambition.
.Isreal and Hamas problem.

.US is World No. 1 economy with 2/3 GDP consuming instead of producing.
.No. 1 military might.

So, I guess the world cannot affort US to fail thus continue to keep this big brother going and in return, seek protection from them e.g. Japan, South Korea, Sgp, Isreal etc.; June 04, 2010 11:40 AM
Anonymous said...: Mr Tan,

A trillion is a thousand billion, not a billion billion.; June 04, 2010 11:53 AM
Anonymous said...: Kill all credit cards, fark the banks and live within your means.; June 04, 2010 12:11 PM
Anonymous said...: There is no viable solution to this debt in the US and also the rest of the world.

If the US increases tax,to pay for debt, the consumer will suffer and companies will reduce production which in turn will lay off employees.

If the US continue to print money and increase debt, the consumer continues buying and spending and companies will increase production and more jobs will be available.

Which will you choose?

US$13,000,000,000,000

The size is amazing. Its so big that ordinary folks cannot relate to it. I certainly cannot.

So, I just leave it be and continue with my life.. not my problem.. yet. I do not see how it can be my problem.. too big, too far away and beyond my understanding.. I cant even borrow 50K, so how can I ever chalk up that amount?; June 04, 2010 1:00 PM
Anonymous said...: If the US Debt has caused any worry or alarmed anyone, it would not have been allowed to balloon the way it does, nor will the US Dollar remains the Benchmark Currency.

As it is, the Dow Jones Index is having its' sway and effect on most, if not all stock markets in the World. Now that the World knows how the Americans have been enjoying the adulations and their epicurean lifestyles, the rest of the World are trying to play catch-up. Whatever calamity anyone can think of is no issue to the individuals.

By the Way, the US has a huge debt, it too has the most most wealthy individuals as well. This could be a consolation that lessens most worries.; June 04, 2010 1:07 PM
Anonymous said...: How fast we forget!
Our addiction to cheap money has a sure way of clouding memories of even the worst (financial) disasters & that we have avoided a meltdown or did we?Only 13 trillions in debt?THINK AGAIN & LOUD ENOUGH,IS MORE THAN THIS AMT$!
The End of Capitalism?Nay,not yet & while Greece is starting to revive some degree memories of the 30s,we now proudly dawn on conventional wisdom that the world has avoided another great depression.Govt around the world band together to push up the confidence of investors & programs of billing,lending & resucing Big Corps are all on the cards,actions were swift & aggressive,in a way, all swept 'under the carpet'.All if not most central banks dropped interest rates,& lent liberally to ailing financial institutions & 'Big Boys'too big to fail.
with the sudden rise of confidence comes too early yet another bubble.
The govts have allow one bubble to transform into another one,remember the tech bubble? & with the slashing of interest frm 6.5% to 1%(USA & the world),it fed another bubble forming,easy & cheap money and housing & assest bubble formed,similar pattern if you will to research & read history of the bubble making...
when e bubble burst,every tricks is apply to alleviate the damage done & deep rescuing,printing money & so on...what in the name of economy & inflation have to do with printing more money,& now,lowest interest rate ever to be recorded since e Great Depression & worldwide trend!
This approach in carhoot generates moral hazzard on a grande scale. Lonely & individual investors now should know that e Govt will do nothing to protect you,ONLY THE BIG BOYS ARE PROTECTED,& the speculative bubble will grow contiually in the name of free market,open economy & free capitalism,where do u stand?if u think deep enough that u shall be saved,THINK AGAIN!your rung in the food chain is getting lower & lower,so everyone seems now to enter the race & bet even bigger? where is the moral?!
if what is happening especially in and around you,here & the region, that prices of real estate & homes are doubling,tripling within the space of few months and the continue to have cheap interest rate on the card,inflationary on the rise,jobless rate too, & low wages,where is the 'balance'of economy wealth & the sharing,& yet everyone is blind to the bubble, well perhaps is high time to start thinking,deep searching & awakening to the rude wake of the "real economy", in every way every citizens are loser save the regime & the connection of 'who u know' suffice...
good luck!; June 04, 2010 1:11 PM
Wealth Journey said...: A billion Billion equals to 1 Trillion is the correct definition.

However, in monetary terms, people usually classify a Trillion as 1000 Billion , not a billion Billion.; June 04, 2010 1:24 PM
Holy Diver said...: Mr Tan. US is a short-scale country. A Trillion is only 1000 Billion.; June 04, 2010 1:34 PM
Anonymous said...: Regarding gold, actually if there is a real crisis, worse-case collapse of financial system, gold will not really be an efficient store of value. Gold provides value in crisis only if (1) you are able to exert a fair trading value and (2) you are not in desperate and dire straits.

You can check out various accounts especially in war time or break down of law and order and public systems e.g. break-up of Yugoslavia. People often had no choice but to trade ridiculous amounts of gold for life-sustaining materials like food, heating oil e.g. 0.5 ounce gold coin (currently US$600+) for 1 loaf of bread.

Actually the "stuff" that would become valuable during crises are your basic materials for survival -- food (tin food), potable water, water purification tablets/machine, medicine, petrol/fuel, heating or cooking oil, cigarettes (u'll be surprised), weapons for self-defense, seeds and planting tools (for those in countries with arable land) etc.

In fact during the depths of the GFC during Oct 2008 and Mar 2009, the stock prices of guns and ammunition manufacturers actually soared, as people were expecting the end of civilisation as we know it, and went to buy guns and stock up on ammo.; June 04, 2010 2:02 PM
Anonymous said...: Very soon all interest rate will start to shoot up to cover the risk of default and inflation.

All those invested in "property with floating rate" may be burnt badly if property price still to drop/or remain unchange and interest rate start to climb.; June 04, 2010 2:53 PM
Anonymous said...: should'nt it be 12 zeroes.
1 trillion = 1,000,000,000,000.0

1 billion = 1,000 million

1 trillion = 1,000 billion; June 04, 2010 3:26 PM
Anonymous said...: This report is scary, don't know where to invest our cash savings,
maybe better to keep cash in the banks.; June 04, 2010 3:29 PM
Anonymous said...: Don't forget it is the senators who have built up all this debt. These guys are supposed to be accountable to the people, yet they quietly take money from the lobbies such as the financial institutions.

These are the same guys who have been dipping their dirty paws into social security and medicare to fund their pork projects in their states.

They only have to worry about their 4 year terms and can borrow all the way to their noses and leave behind debt for future generations.; June 04, 2010 4:28 PM
jamesneo said...: Depending on how serious is the crash or whether a new paradigm for money is installed, it is difficult to say how to best protect ones asset. My view is that a 10-30% gold, and 20-40% in stocks might be the best combination. Yes the stocks might be badly affected especially those in the US and European stocks, but i think some of our local stocks can help one to ride out the storm.

For gold here is a interesting website :http://fofoa.blogspot.com/2010/06/its-debt-stupid.html

For Stocks, Marc Faber suggested that stocks in certain case although not perfect are somewhat much better in protecting ones wealth compared to bonds or cash.

http://www.youtube.com/watch?v=H0sS6a9RW2E&feature=player_embedded; June 04, 2010 4:41 PM
Tan Kin Lian said...: Sorry. My mistake. It was 12 digits (and not 18 digits). I shall correct my posting.; June 04, 2010 8:28 PM
Anonymous said...: China chinese work like slave in Foxconn to produce iPad, iPhone etc. People work and work and work.

38% of US citizens [300 million] are overweight. No wonder you see lots of fat people on talk shows.

In the past during British Empire time, india provide cheap labour and Britain grow fat and lazy due to cheap resources.

Past and Present no different.

China has US$800 billion in US bonds while US has US$13 trillion debt. The saver saved like mad to let US spend like mad and grow fat. So who are the suckers?; June 04, 2010 9:03 PM
shaker said...: For those with landed property, start thinking how to collect drinkable rain water.
Learn hydroponics, make bread with flour.
live without sugar and salt

live without air-con and electricity
learn to read books and talk to each other.

I cannot wait for this to happen!
At long last!.. we actually have to listen to some other person with full attention.. no blackberry, no sms, no phones

It will be a great time for bonding; June 04, 2010 9:33 PM
Anonymous said...: @anon 4June 9.25am.
TKL isn't all wrong,& you r not right either.Looking 'back'30s Great Depression,nothing with standing can hold e crisis which domino out of great proportion.
If USA is to 'default'on debt & to create a crisis thereafter(which e world knows is TOO BIG TO FALL),even GOLD is not 'safe haven',nothing is, ONLY basic of human survival shall suffice,such like food & basic shelter bcuz inflation if any is going thru e roof & even with paper money, nothing is worth e exchange,so is GOLD UNLESS,some BIGGER economy will take over the lead of USA & remember here we r talking of more than 13trillions & no GDP of e world could swallow such deficit & is growing every day!Nothing can & will withstand e tsunami of USA fall maybe some 15years frm now when CHINA & INDIA combine take over the world economy?Look at Japan being the highest standard of living in Asia,what happen today?Yet surprisingly Yen is in such strong (&weak)position which is certainly no good & create imbalances in their export...
In short,what TKL advocate of a basic economy & not just capitalist system is a right & only way to go,GO BACK TO BASIC of the 60s,70s &80s where life is simple,true productivity & economy growth is base on deligent working & producing goods for sales & e cycle of economic at work..Now everything stem from 'future''hedge''dereviatives''options''stocks'u name it, u have it & real estate..where is the real value when land & pigeon hold flats skyrocketed out of proportion & in e name of 'open economy',all imbalances will have to audit e consequences of the tomorrow we are creating today...
...if USA is to fall,well, that will be the day when doom hell's calling & hopefully,we shall survive to tell e tale which i doubt very much so...so remember, how fast we forget just the like of last year....& one more thing, even this GREAT SINGAPORE GOVT WILL NOT BE ABLE TO HELP U FOR SURE!; June 04, 2010 10:11 PM
Anonymous said...: Dear Mr Tan,
i like it when u write ariticle in this line thought,it offers real challenge of thinking,& seeing comments therein,alternatives are noticed within (though just) comments.u are honestly outright that u do not have answer how to protect in case USA collapse & the GREATEST DEPRESSION headed our way,well,there is no protection only regimented rule of laws will follow bcus there shall be chaos everywhere around e world!
humans have short memories or do we deliberately choose to have one.we have been bailing out one crisis to another,even in Singapore context,how we have been secretly bailing out the BIG BOYS,BANKS & FINANCIAL INSTITUION..
G20 acknowledge openly that e economy is more fragile than expected & yesterday non-pay farm roll reported jobless rate is on the rise as opposed to be dropping regardless,we are in 'end time',& sorry to say,our reliance on capitalism is too great to eradicate..we are too late & with all the kind soul like yourself & here, let's all pray for a kinder ending if any,& bless each day ahead with more meaningful doing,& helping our fellow human being,not just Singaporean but all that come across that u could extend a hand.
the bubble assets,the economy & the GDPs,whatever is balloned to such extend that knowledge,wisdom & our learning in the days of schooling have propel 'fake'value of things in the making & things to come.the moral hazzard is too great to comprehend & with govt around e world continuing to lie, cheat & make belief what we are in, civilians the like of us are in for ONE BIG SURPRISE that is coming our way..be watchful & not be caught sleeping when e day arrive,continue to be a crusader but do it really with a heart,only this suffice the struggle & value of continuing living in a world that is 'too big to fall' & yes, FALL IT WILL AND HARD,within each means,touch a soul each day and care enough to say,"lets be friend and hold my hand..."; June 05, 2010 11:21 AM
Steve Wu said...: At US$13 trillion, the US holds the singular status as a country "too big to fail". Many will agree that the situation causes more worries for the debt holders (e.g. China, Japan and others) than the US itself. Few would benefit if US were to default, hence the concerted effort to prevent it.

Coming back to Singapore, the external debt may be low but the overall public debt (about S$300 billion) is VERY high relative to the GDP. This is primarily in the form of CPF monies owed to the citizens.

Indeed, Tharman had disingenuously stated in parliament that the government does not need to borrow money from the citizens (CPF) when it can belong from the market at lower interest rates.

Firstly, this is only true in recent times. For a very long time, members have been paid less than market interest rates for their CPF contributions. Tharman fails to acknowledge the sacrifice in that the People provided cheap funds to develop the nation in the critical early stages. I would certainly like to see how he, as the Finance Minister, would orchestrate the return all CPF monies to citizens by borrowing from the market....if he meant what he said.

Secondly, any government default on external debt invariably leads to a crisis. The big difference with CPF is, of course, the government's ability to create hogwash to justify CPF payout deferments and to legislate the problem away.

The present situation is unacceptable.; June 06, 2010 11:01 PM

Friday, June 04, 2010

US Debt of USD 13 trillion

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