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:
- 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.
- 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.
- 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.
- 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.
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.