A sigh of relief – US Debt crisis

After two weeks of seeing the barrel of a gun, no shot was fired. What a great relief. We live to see another day. The threat of a US debt default was lifted at the eleventh hour before Thursday. Common sense prevailed and the political stalemate between Republicans and Democrats/President Obama was broken.

This truce was temporary. The funding for government spending and review of debt ceiling were now shifted to 15 January and 7 February 2014. In the time to 13 December 2013, both Republicans and Democrats have to negotiate a comprehensive government revenue and expenditure to prevent another episode from repeating itself.

Politics hold economy hostage especially we are talking about the world’s biggest economy, some US$15.6 trillion Gross Domestic Product. (The second largest economy, China was only US$8.2 trillion, about half of US.) US dollar is still undisputedly the world’s reserve currency. Euro, Yen, Sterling Pound and Chinese Yuan cannot replace US dollar. Countries hold US treasury securities in their foreign reserves. China holds US$1.27 trillion, Japan holds US$1.13 trillion, China and Japan will be the biggest losers if US treasury securities collapse in value. This did not happen. (Singapore holds US$81 billion, among the top fifteen nations holding them.)

As for Singapore stock market, the Straits Times Index (STI) did not jump a lot yesterday and today. The US debt problem did not impact the investors as much as expected. So investors who sat out the crisis and did not dump shares were rewarded for inaction. Inaction is an option in investment psyche.

Copyright © 2013, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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