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