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Where would CPF money go if it is nominated to a bankrupt? When Madam Lim Lye Kiang sought to claim the $102,000 from CPF which her late sister had left her, she would never have expected that the CPF Board transferred the money to the OA (Official Assignee) to...

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Why you should not buy IPOs As Sheng Siong is launching its IPO next month, I expected a few calls as whenever an IPO is launching. And if you are my client, you know my answer. I decide to write this article so everybody can benefit...

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Questions to ask your Financial Adviser Every Sunday morning when I flip open the newspapers, I always see articles or advertisements regarding "Financial Advisers". Nowadays, just like the once prestigious word "Banker", which is misused in...

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Revision to Nomination of Insurance Nominees Regulation With the onset of the Mental Capacity Act ("MCA") coming into effect on 1st March 2010, the Insurance (Nomination of Beneficiaries) Regulations 2009 ("the Regulations") will be amended to effect 2 changes: The...

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The ABCs of the Financial Advisers Act The title, Financial Adviser, is always mis-used in the industry and misunderstood by the consumers. On 10 October 2002, the Financial Advisers Act came into effect and all financial institutions are...

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US Debt Ceiling – The Dangerous Game and a Wayang Show

Category : Monetary and Fiscal Policy

Further to my story about US debt ceiling problem, I showed you that the debt ceiling has been raised many times in the history. It looks that raising debt ceiling is a norm in US, but why are investors worried? Let me continue the story.

Although Uncle Sam is a very powerful person, there are another two influential politicians in the country, the Democratic Party (The “D”) and the Republican Party (The “R”). If Sam wants to increase the ceiling, the “D” and the “R” must reach an agreement.

The problem is, the “D” and the “R” are two spoiled kids who have been fighting against each other for the sake of fighting since they were born.

The “D”, being the ruling party of the country now, wants a long term solution because they have been criticized of allowing Uncle Sam’s debt piling up for the past years.

However, the “R”, who was always blaming “D” for their inability to cut budget deficit, wants a temporary plan which last only for six months. So they can restart the blaming game again and probably even use it as a tool to bring “D” down.  (The irony is that a big chunk of current deficit is left by “R” when they ruled the country)

Uncle Sam is frustrated, because being so rich by borrowing so much money, he has a deep pocket that he can pay his debt due on Aug 2 anyway. Even if he run out of cash, he can choose to halt social security payments or default on other obligations like paying its military before it defaults on its debts.

However, because this stupid politics, he can just sit there and watch this wayang show. It is even more ridiculous that the US Congress can authorise future spending but subsequently have to vote on whether to permit the necessary borrowing to fund the agreed budget deficit.

No wonder US President Obama said:

“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills – we do – but because we didn’t have a AAA political system to match our AAA credit rating,

Do the politicans care about the economical impact of this dangerous game? Obviously not! They are politicians.

Now the show is coming to the end. Tighten your seat belt.

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