Wednesday, August 10, 2011

The US debt crisis impacts the world

For the past few months, I notice the drastic change in the consumers behaviour on their spending/shopping habits in Silicon Valley of California. When I came to the USA late 2009, the US economy wasn't much affected yet. At that time, Americans still could spent their money to get their latest gadgets, go for vacations with families within the country or outside the USA. During that time, it wasn't much options to find the rented apartments apartments and houses within the Silicon Valley area, because most of them were fully occupied. Gas prices was cheap at US$1.99 per gallon for unleaded plus and people could travel within the states affordability. Now, when many Americans are out of jobs/layoff by companies in Silicon Valley, it' becomes difficult for them to find jobs because there aren't many opportunities available. Companies prefer to outsource the jobs to outside the USA for cheaper costs and paying less taxes and medical benefits which are mandatory in the States. As such, many of them who are still unemployed, begin to depend on unemployment benefits (which is extended to end 2011) and spend less in everything from groceries shopping, dining outside and summer vacations. On top of that, more problems arise when they can't afford to pay for their mortgage loans, they have to sell off their properties. These days, I can find many houses for sale on weekends within my neighbourhood. When more people opt to move to rented apartments, the rental becomes more expensive. The current rental price for 2 bedroom apartment in Cupertino (which is popular for good schools and neighbourhood) has shot up to US$2,800 per month. Can you imagine how many families can afford to rent at good neighbourhood in order to send their children to good schools? On top of everything, more shooting crimes, break-in and robbery cases occur frequently, no matter where you are in the Silicon Valley. 

In this video, it explains why the US economy facing its recession and how the US market will impact the world. Also, it highlights on how the US government accumulates its current national (federal) debts to US$14 trillion:

How does the US downgraded credit rating affect you?
When the announcement of the US budget cuts of $2 trillion for the next 10 years and the US credit rating has been downgraded from triple A to double A+, many factors will be affected:
  1. Bad news will not be Good news: Whenever there is bad news on economic issue or political issue, the share market will eventually not performing well. It depends on how big is the big factor on the issue which will impact on the share market within the region or the worldwide.
  2. Listed Companies: Many companies are listed in the share markets. Their shares performance affect badly due to poor market performance. As such, this will halt the companies’ effort to create more jobs during this period. However, the current jobs market aren’t secured at all. Generally, all the white and blue workers are worried that they might be retrenched/layoff anytime if the companies need to maintain their profits.
  3. Higher debts: More debts incurred due to the possibility of higher interest rates on your mortgage loans, car loans, personal loans, study loans, credit card debts etc. According to MSN Money, economists forecast an estimate of 4% increased on mortgage interest while 1% increased on credit card interest rate. Although FED maintains the interest rate by 2013, it depends on how the US government to increase the economy in order to restore the investors’ confidence towards the US market.
  4. Higher Spending and inflation rate: You may think it doesn’t affect on you as long as you don’t have shares. However, it’s not true. It does trigger everybody to spend less when there’s a decline on share and growth markets. Consumers will tend to be thrifty and save more during weak economy which will affect on companies’ performance. As such, companies will begin to cut jobs and reduce manufacturing operations. As a result, where there is a limited supply, cost will be increased due to higher demand on the product.
How does the US market affect the world?
This is like ripple effect. All the nations depend their business industries on each other. When the US market is weak, the European and Asia markets will be affected as well. Now, the European Union is worry about Italy and Spain who are unable to pay their debts and need to be bailed out soon. If the US government doesn’t take immediate action to improve its economy, we will be heading to world’s double dip recession soon.

My Older Post:

No comments:

Post a Comment